The Four Chapters

After spending over 20 years advising Banks, Business and Accountants around the world, I have come to the realization that very few companies can bring the numbers to life. I have dedicated my working career to make Business Simple. Simon Sinek eloquently describes the importance to enunciate your business Purpose, mine is “Making Business Simple”. All my financial techniques are designed with the key focus on simplicity. If we apply this to your company’s numbers, it will be told over 4 Chapters i.e.

  • Chapter 1 – Profitability
  • Chapter 2 – Working Capital (i.e. Accounts Receivables, Inventory/Work-In-Progress, Accounts Payables)
  • Chapter 3 – Other Capital (This is the rest of the Balance Sheet and the main item is normally Fixed Assets)
  • Chapter 4 – Funding (The result of the business is Funding – You cannot read Chapter 1 Profit and expect to understand Chapter 4 Cash Flow)

It is common for business owners to lament to me that they don’t comprehend why their company is making good profit and yet doesn’t reflect in the bank balance. My advice to them would be for them to understand the 4 chapters of the cash flow story. Recognizing all 4 chapters of your company’s cash flow will allow you to reconcile to its profit as illustrated below:

My key message for business is NO SURPRISES. If you understand the 4 Chapters you will understand your Cash Flow. If you understand the Cash Flow you will understand your bank who are focused upon your cash flow as measured by your capacity to repay.

Copyright © 2019 Alan Miltz. All Rights Reserved