Most people who have never had businesses of their own think that owning a business automatically means you have dough.
“Sure, you can get the check because you can just write if off.”
Do these people understand that having a business is the most delicate balancing act of cash management that anyone can likely undertake? That the cash we all have is as precious as air itself and that writing things off does not mean free money?
When I was at MBA school all of these professors would say ‘cash is king’ as religiously as I tell my children to wash their hands…..consistently and with purpose.
I was paying attention at school but never really understood the seriousness of this message until cash in my first business became more than king….it became air….without it we were going to die.
I remember going in to my amazing accountant and saying “This year end looks awesome! We made some good money, eh? But, where is all the cash?”. She replied “Well, those financial statements who what we did but there is no cash, and actually we need $600,000 by Friday.”
WTF was an understatement.
I knew how to read financial statements and my MBA brain got too caught up in what they read to be paying attention to the cash…..and truthfully I knew the cash was running out and I was kind of avoiding asking the question because I did not want to address it. Ignorance is bliss – or so they say. Until ignorance takes the shape of a six figure number and then ignorance made me sick to my stomach and run for the closest waste paper basket.
Cash is king.
Cash can also be air.
So, here is what I know from learning things the hard way:
- Always, always, always know how much cash you have in your account.
- Take that cash in your account number and subtract all of the payments you have in the mail. That is cash or cheques which are in envelopes travelling to their rightful owners by way of a lovely post man or mistress.
- Figure out your ‘burn rate’ – this is how much money it costs you to keep your business running a month. Keep this number as close to low as you can. Map out your expenses on a calendar.
- Never assume you are going to get paid when you think you will – add at least a two week buffer for receipt of earned revenue.
- Invest interest free when you can in building your business. Try and grow organically when possible.
- If you must leverage (borrow), work with a lender where you can speak face to face with the decision maker on your file. You might need to rely on a good relationship one day.
- Ask for terms on everything. Stretch your money out to build your business, hold on to it for as long as you can.
- Ask for pre-payment and retainers whenever you can. Use client money to build your business.
- Balance Sheets (B/S) stand for ‘bull sh*t’ when you are in a cash crunch. Income statements (I/S) are called ‘imaginary statistics’ when the cash runs out. Stop listening to your financial statements alone to measure your business health – look to your cash as well and often.
- Cash is like a tide – it goes out and in and out and in…..do not panic when it is out, but understand well how and when it is coming back in and always be conservative. It might be a full moon kind of month when forces outside of your control keep the flow out for longer than usual.
I am working on structure for the financial secrets component of my course right now, so I could not help but share a few of my tips with you now, before the course launches in September.
Cash is something we seldom talk about because it is so personal and a topic so close to the heart of almost every entrepreneur who knows all too well the feeling that overcomes when you are short on cash…..I would never wish this feeling on anyone. Well, there is this one guy…but aside from him, no one (I’ll tell you that story another time when I talk about partnerships).
The truth is that when we are worried about the cash position of our business we are not working on our business – we are distracted and acting from a place of lacking and fear and this is never, ever good.
It is true that when I am in the flow of my work, my business and what I do to add value to people’s lives or my business, then the cash flows too. When I am in fear and forced ignorance, nothing works nearly as well and the flow stops altogether.
So, if you are ignoring your finances – this is permission to be fearful and not want to do something about it but to pull up your socks and get to the truth of it. Trust me, you and your business will be better for it no matter what you find.
With trust and truth,
PS- I want to take this amazing opportunity to welcome some new countries to my readership….growing like a wild weed and loving it…..welcome to those of you in Portugal and Qatar! So happy to have you along with us for the adventure of life and business together. Keep the share fest going….spread my love and insights amongst your friends who have or want to start businesses that support them in the amazing life they want to have.
with love…… xo