Vol. 77: Grab the sword and become a Cash Flow Knight

“I went to a bookstore and asked the saleswoman, ‘Where’s the self-help section?’ She said if she told me, it would defeat the purpose.” — George Carlin

Too busy to clean the barn because all the horses are running loose? Our recent series featuring the Four Horsemen of the Apocalypse was a grim reminder that regardless of how many people are lined up outside our door, how many calls we have to return, whether we’re in the top ten for inbox clutter – we’re not absolved of our duty to master our most precious resource: cash flow. That’s why Warren Buffett calls it the “lifeblood of business.” Whether you’re unable to make payroll, can’t finance growth, can’t raise money or find that your business value is a black hole, mastering this process is the centerpiece of excellence.

So, what do we do about it? Although I didn’t start out to create a long series about business finance, so many of you have asked about how to make these improvements that I’ve decided to create a path to help you get there.

You CAN learn the principles of business finance

The first step on every knight’s journey is to slay any dragons in his path … so we’re going to kill off a few misconceptions about business finance. The most important is that you can learn these basic principles. As I’ve said before, you don’t have to be an MBA, CFO or accounting major to understand these essential concepts. If you focus on the core principles, you can direct your team and be sure that everyone’s paying attention to the right things.

Avoid EBITDA (except for bank covenants)

Another dragon in our path is EBITDA. I wrote the Death to EBITDA column a few months ago to eviscerate the belief that EBITDA is a useful placeholder for cash flow, which it isn’t. Let me state that in big bold words: EBITDA is not a placeholder for cash flow. If you have any questions after reading that column, let me know.

Focus on Comprehensive Cash Flow

A knight (in the modern world, it is gender neutral) won’t last long without a sharp sword, so we need to understand comprehensive cash flow and how it intersects with the P&L and balance sheet. We recently added a new video to our Financial Adrenaline video library entitled Follow the Money, which is a visual primer that explains this concept.  It’s a good place to start, and it only takes about six minutes – no financial jargon. It’s all done with visual tools to make it very easy to understand how to apply it to your business.

[pullquote]Work with your P&L, Sleep with your balance sheet.[/pullquote]

Work with your P&L, sleep with your balance sheet

As a knight doesn’t travel without his squire, you can’t make this journey without the balance sheet scrolled up and tucked in your tunic. I’ve recited in previous columns that business executives spend most of their time looking at the income statement, and I’ve explained why I think that’s the case. Unfortunately, you really have less control over the P&L than you do the balance sheet, which is the bedrock of comprehensive cash flow. How cash is invested shows up on the balance sheet, and changes that occur there form the cornerstone of free cash flow. You’ve got to take some time to understand balance sheet fundamentals because there is absolutely no substitute.

Embrace accrual-based accounting … it’s a great friend!

This may seem too elementary to some, but every week I encounter a company that doesn’t use an accrual-based accounting system or has a hybrid system even they don’t understand. Without this key, the vault will forever remain sealed, and you’ll never know whether your revenue is profitable or be able to tell if one division or product line is making money or not. It certainly makes no sense to leave that to chance.

I need your help

I want you to help me on this journey. Start by visiting our special Financial Adrenaline section. Examine the materials you find and let me know what would really help you pull the sword from the stone and become a Cash Flow Knight. We’ll be chronicling each step in forthcoming columns but they will be supplemented by video and audio materials on the Exkalibur web site.

So, let the journey begin. To the victor go the spoils … so devote some quality time to learning the basic principles of business finance. Why not subscribe to our Sword Tips blog so you don’t miss anything on your journey to become a Cash Flow Knight.

Who else is going to preserve and protect your most important asset?



Lary Kirchenbauer is the president of Exkalibur Advisors, Inc.,providing practical business strategies for family and other privately owned businesses in the middle market. Exkalibur works closely with senior executives and their businesses in the wine and other industries, and hosts the Exkalibur Leadership Forum for leaders of middle market companies in the North Bay. Please visit www.Exkalibur.com for a library of valuable resources, articles and insights or connect on Twitter or the Exkalibur fan page on Facebook.


The North Bay Business Journal, a publication of the New York Times, is a weekly business newspaper which I have served as a regular columnist for about three years. The Business Journal covers the North Bay area of San Francisco – from the Golden Gate bridge north, including the Wine Country of Sonoma and Napa counties.


Article published – November 22, 2010: The electronic version of this article, as published by the North Bay Business Journal, may be found here. ******************************

Any related materials or articles referenced in the published column, or otherwise applicable, are referenced in this digital version of the article.

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