The First Three Answers You Need Each Week To Run A Business

At times in my career I was asked to take the helm of organizations that were struggling. Sometimes it required a turn around. Other times a jumpstart out of malaise. Either required a closer than usual monitoring of financial performance.

Here are the first three questions I asked each week.

  1. Do We Have Enough Cash?

Cash is king. Without cash the business stalls so sufficient cash is your key indicator. Businesses differ, but our goal was to have 3 months liquidity.

We calculated cash sufficiency weekly. Our formula to measure cash sufficiency is:

Cash plus Clean Current Accounts Receivable

Divided by Average Monthly Total Expense

By Clean I mean AR excluding payments either delayed or disputed or expected to become so. And Current is only those accounts within the agreed terms.

The Average Monthly Expense was calculated by summing the prior month’s actual Total Expense, the current month’s budget, and the forecast expense for the next month, and dividing the total by 3. This somewhat more complicated calculation allowed the result to account for the effects of unbudgeted expense or a reduction in expense.

The weekly results were charted as follows:

The computation results in a ratio that roughly depicts the number of month liquidity. Our goal was 3 months so if the ration was 3.0 or higher (the redline on the chart) things were good. If it was 2.9 or smaller I headed immediately to my CFO’s office.

  1. Are We Meeting Our Profit Goals?

The next thing I wanted to know is whether we were meeting our Revenue and Profit goals. The tool I used is a weekly pro-forma P&L. This one makes the accounting department groan, but it doesn’t have to be that hard.

Besides it is unacceptable to have to wait a week or two after the end of the month to determine financial performance. Any problem revealed in those reports may have been going on for up to six weeks – and may take another week or two to remedy. Way too slow. A summary proforma P&L allows one to identify financial problems week by week.

To create the pro-forma we started with a summary monthly P&L based upon the current forecast. Revenue is broken up into weekly targets. Total Expense was expressed as one monthly number. Cost of Goods Sold (COGS) or Cost of Sales (COS) was estimated with a calculation.

An example is provided below.

At the end of each week the estimated weekly Revenue is entered based upon actual production. Total Expense is adjusted en masse only for significant changes (5% or greater impact) such as a large unanticipated expense, credit or reduction.

Retotaling the numbers gave us a simple weekly pro-forma P&L. It’s not perfect, but it gave us enough to know whether we were on target for our monthly profit goal and how to make adjustments early enough to make a difference. And it’s a lot better than finding out on mid-April that we had a problem the first week in March.

  1. Are We Growing?

The best indicator I know of to track trends is the Trailing 12 Months Chart (T12M). T12M was introduced to me by Kraig Kramers, a successful CEO and executive coach who taught his techniques through his CEO Toolkit, which included T12M.

T12M is a simple chart, but one that provides a powerful indicator that removes factors like seasonality or other spikes to provide a clear trend.

For example, the following chart compares the monthly sales or 2016 and 2017 for a sample company. Can you tell whether sales are rising, falling or staying flat? It’s difficult at best.

The same information is shown in the T12M chart below. Each point of a T12M is the sum of the values for the prior 12 months. In this case the first point of the graph is the sum of sales from January to December. The second point would be the total from February to January, the third March to February. Each point represents the sum of the value measured for the preceding 12 months. The upward trend in Sales year to year is easy to see.

Note there are no values on the y-axis. This is because the trend is the importance of T12M. The values are only a means to produce the trend and so the values are not displayed to prevent inaccurate interpretations.

We created T12M charts every month for Sales, Revenue and Net Profit. By removing the effects of short-term factors like an erratic sales flow, seasonality in demand, or that one huge deal, T12M showed us an absolute trend, upward or downward, to which we could respond.

The point is, when things are tight or critical, monthly reports are too slow. These three simple indicators kept us abreast of our improvement or areas we needed to address now!

If you have any questions or want more information, feel free to contact me at





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