When I was a kid I loved building models, especially with Legos. My visual of the day is a Lego model I did as an adult of the Willis Tower in Chicago.
I’m Tom Kuhn, CEO of Qnity, along with my partner Erin, and our team, we’re here to make small business finances simple, visual and actionable. Our mission is to level up the collective financial intelligence for small business owners and leaders, which is needed now more than ever.
When you buy a LEGO kit, it comes with the playbook for creating the model you see on the package. Well, there’s no playbook for the small businesses right now. But we still need to build models. One of the things that we’ve been very conscious of during this massive disruption is that business models are and will change dramatically.
Many people are talking about this conceptually - so much focus is on navigating government relief. I get it. My challenge to small business leaders is that we actually start working on building models now.
With so many unknowns, planning our recovery and predicting the future of our businesses has become inherently more difficult. And yet, building models for our future is critically important.
I’m going to cover two types of models, with actionable tips for each. The first is a structure for you to address your overall business model, called “5 Functions.” The second is a cash flow model including how and why it needs to become a daily practice.
At Qnity, we have a simple structure and visual tool called Five Functions. Our clients have used it for years to break their business model into five key functions - for great planning and more importantly great execution. Our visual thinkers love it.
It is especially useful now as a way to relook at your business. It allows you to proactively address Five KEY Functions in your small business - Finance, Operations, Marketing, Education and Human Capital.
Every week we have a Wednesday Noon call for our Qnity clients. Using our 9Grid Tool, we have experts from our community share what to do right now in each of the five functions. It’s been our lifeblood to taking action now.
You can start doing this yourself by grouping key elements of your business under these functions, and starting to list how they may change in the future. For a deeper dive into Five Functions, subscribe to our YouTube channel.
Cash Flow Management
Next let’s talk about building new models in the Finance function. To start, create an elevated Daily Ritual of Cash Flow Management. Cash is the oxygen of the business. So of course we start here.
Even if cash isn’t exactly “flowing” right now - you need a daily ritual for cash management. Beyond just checking the bank balances.
It’s as simple as creating a model - in this case usually a spreadsheet - where each day, you update your current cash position and activity AND enter amounts that will come in and go out for future dates. Each day as more information comes in, you update it. You put in the model when rent starts up again. When your payroll gets built back in. When Paycheck Protection program milestones occur. And all other cash transactions. Day by day you build predictability. At times it will be 3 steps forward and two steps back due to volatility. But eventually you will be able to look out in the future and see clearer and clearer how your cash ebbs and flows..
Begin by setting up a column for each day at least 6 months out.
With the current volatility, it will be difficult to predict. BUT, you will have the habit in place AND the model built.
By doing this you will be taking micro steps to eventual predictability. Which is a duty you have to your stakeholders including yourself and your family. Can this be delegated? Yea for sure. BUT that does not transfer ownership. Owners and senior leaders can never fully abdicate cash management to someone else. Key point.
Do this, level up your daily cash management. With all financial models You have to begin by making “assumptions.” You will adjust the assumptions in your models as new information becomes available.
One of the reasons we keep talking about leveling up the collective financial intelligence for small business owners and leaders, is because the skill of building financial models is no longer a nice to have, it’s a NEED to have - for your business to survive AND thrive.
When the crisis is over, it will be clear which companies have the resilience and agility to reshape their business model and financial management to thrive in the future.
Start building your new finance model today. It may not seem as fun as building a LEGO model, but I promise, the result will be even more rewarding.
And please pay this forward by sharing this information and our YouTube channel with other small business owners.
We are dedicated to supporting you and helping you level up your financial know how.
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