8 Sheets to Exit Red

Is the money over?
Excel Spreadsheets


There are 2 reasons why a company's money could end up leading to the fearsome "red". The first is when less money comes in, meaning less sales. The second is when more money comes out, that is, more expenses.

There is not much to do compared to fewer sales if the company is already in a consolidated market. New marketing initiatives can be thought of, new sales channels, other audiences, but they will be just bets that will require more investment to ship and can be a real shot in the foot.

When the company is already in the red, I prefer to think on the other side of the issue: high expenses. The key to understanding how to get the company out of the red is to know why it came in this situation.

Excel Spreadsheets

8 1 Exit Worksheets

From the experience of the LIGHT in years of consulting, we can state that 3 there are great reasons that lead a company to have chronic losses: 1) Poor cash flow visualization; 2) Low profitability; 3) Lack of control and financial discipline.

Reasons to be in the red

Bad Cash Flow Statement

Lack of an Appropriate Launch Tool

It seems even hard to believe, but there are still many entrepreneurs who control their entries and exits in a notebook, or even control. When the company lacks a simple cash flow, it does not know if it is winning the game either in the short or the long term. That is, staying in the blue is just a matter of luck.

The minimum that a cash flow tool should offer is: initial balance + inflows - outflows = final balance. The financial manager should view and analyze this by day, week or month, depending on the size of the operation.

Cash flow

The first two tools to get out of the red are:

1 - Sheet Cash Flow

2 - Cash Flow Worksheet with Bank Analysis and Forms of Payment (for those who control multiple banks and receive discounted forms of payment)

Little Control of Accounts Payable and Receivable

It's no use staying in blue today if you have more bills to pay than accounts receivable in the future. Even because you may be in the blue just because you have delayed your suppliers.

Cash Need

There are two ways to view your cash flow: 1) box - when transactions actually exit or enter the company cashier; 2) competence - when transactions are closed. So sometimes your money is in the box, but it is already committed to closed transactions.

If you are not looking for your bills to pay and your bills to make you will make three basic mistakes:
1) spend money that is already committed;
2) negotiate with suppliers and banks on time and, by definition, when you negotiate in a hurry you do bad deals;
3) offer a more flexible installment policy for its customers than its liquidity can afford, even more if you pay your suppliers the view.

Two more tools to get out of the red:

3 - Accounts Receivable Worksheet

4 - Accounts Payable Worksheet

No Classification of Revenues and Expenses

Let's say you have identified that your spending in February was too high or that your accounts payable two months from now are pointing to something much bigger than usual. Because? If you do not rate income and expenses in groups, you will never know where the disparity is, as you'll have to look for it to launch, when it would be much better to find out which group the disparity is in, and then analyze it in depth. The best way to do this is by creating a managerial chart of accounts.

Chart of Accounts

All the tools mentioned above have Chart of Accounts. I suggest you use the same in all, if you want to use all of them.

Learning #1 - Good cash control goes way beyond finishing a month on the green. One must understand the reasons for the outcome and where it is going.

8 1 Exit Worksheets

Low Profitability

For a company to stay in the blue, it is crucial that its managers know the difference between cash flow and profitability. Profitability shows whether your operation is profitable, that is, whether the costs to produce that product or service generate positive profit at the end of the day. The cash management shows if the company will have money to pay the bills.

Sometimes the operation is profitable, but the cash generation is negative because the company has made large orders for suppliers, overstated the parceling policy for customers or has many products stuck in stock.

In short, profitability is the profit of the operation divided by sales revenue, but its profitability must be measured virtually product to product or service to service, so you have the notion that individually they generate a good margin. There are usually two problems that lead to low profitability and we will see them below.


High costs

Separate your direct costs from the indirect ones in the analysis. The direct ones are the ones needed to sell an additional unit of the product or service. Let's wear a shirt as an example. We have as direct costs the raw material (cloth, stamp, packaging, etc.), taxes on the revenue and possible commissions on the sale.

contribution margin

For a top-selling shirt, I need to buy, stock or pay for those items, but I do not need to increase my staff, my office or salaries. On the face of it, you have to understand what margin of contribution each shirt leaves me, that is, paying the direct costs, how much to spare to pay the fixed costs and generate my profit.

See the example below in which the company is priced at R $ 120, direct cost of R $ 20, a projection of 10.000 sales and a fixed cost of R $ 100.000 resulting in a profitability of 75%:


Now we will double the variable cost. Notice that profitability has fallen to 58%:


Lastly, we will return the variable cost to $ 20 and we will double the fixed cost. Profitability is now 66%:


By doubling the direct costs I have a loss of profitability greater than doubling the fixed costs. So always review your direct costs and see if you've lost margin in the last few periods. It is very common for the entrepreneur to complain about a rent that increases one thousand reais, when what makes the difference are those 10 cents that the supplier has increased in a raw material.

One more tool to get out of the red:

5 - Contribution Margin and Profitability Worksheet

Pricing Made Bad

When you have a product or service without many differentials in terms of value perception, the market will set its price. You can not stay far above your competitors if you want to continue selling. The problem with this is that sometimes your suppliers will readjust prices and you may not always be able to pass them on to your customers.

Always be aware of your break even point which is the amount of units you need to sell in a month to stay at zero to zero paying direct and fixed costs. If a supplier reads prices, calculate your new breakeven point and see if it is still viable to reach it with your current sales channels.

Point of Equilibrium

One more tool to get out of the red:

6 - Point of Equilibrium Worksheet

Learning #2 - ALWAYS review your costs and keep a company lean at all costs. That's the key to good profitability.

8 1 Exit Worksheets

Lack of Control and Financial Discipline

The big problem of small business is that either people are free to contract new expenses, or who plans the spending approves. In this case, you will approve always. All the ideas I have are cool to me, but I need someone to tell me no or make me think about them so I do not spend my time and money on unfounded projects.

There are usually two reasons why companies sin in financial control and discipline and we will see them below.

Bad Budget

The budget is precisely to set the spending limits for each category of account. To have a budget culture in the company, the manager must develop some disciplines: 1) do it; 2) periodically reviews it; 3) stick to it. It's no use having a nice budget document and not following it for anything or forgetting to reschedule it month by month or longer periods, depending on the maturity of the company. There are 3 ways to make a budget:

Historical base - look at the past and project the bills on top of that.

Base zero - designing the accounts based on a goal to be beat.

Collaborative - those responsible design the accounts with freedom.

Budget - Real x Planned

In the opinion of the LIGHT the best way to make a budget is by putting together a little of each of the 3 ways: setting goals from the past and separating the accounts in order to reach those goals with the help of the person in charge of each area. It is good to always remember that if a person feels responsible for the budget he becomes a partner of the company manager in implementing the culture. If the budget is imposed, the manager becomes the "evil boss."

Two more tools to get out of the red:

7 - Budget Sheet

8 - Economic-Financial Evaluation Worksheet

Structure of Decisions

This point only depends on the manager to be bypassed. No tool will help without discipline. The problem is that usually the manager of a small business accumulates charges. It is he who sells, hires, does the financial, manages the production. It is difficult to do activities that require discipline without help from a second person or more. Not to mention that if the owner of the company is who plans the expenses and approves, all will be approved.


Do not worry! We have some tips to improve the structure of decisions and maintain financial discipline in the company:

  1. choose a second person to help with discipline. It can be a partner, wife or husband, a trusted friend or employee, or a consultant. Accept when that person says that your idea is not a good idea.
  2. do not mix house accounts with company accounts. If you do this, everything that has been said in that article becomes useless. How will you know if your operation is profitable if your child's school or car expenses go into their outcome, for example?
  3. set a salary for the managing partners as soon as possible. The financier does not like surprises. If every month you withdraw all the cash left over from the company, it will be difficult to meet budgets and accounts payable. An interesting way to define the salaries of managing partners is to ask themselves: If I were to hire someone to do my job or my partners, how much would I pay for it?

Learning #3 - Mand all de management consultant are used by  people. It os managers no seek ways de keepthem, nothing will serve.

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