Tag Archives: cash flow

Want To Survive? Forget Profits, Focus On Cash Flow

When I was starting out in business I had a difficult time understanding cash flow.  I thought in terms of profit.  Making the big score. Incredibly I saw people making big bucks but still teetering on the edge of disaster.  I saw business people who thought they could spend their way to success, and, instead crashed and burned.  I determined then that cash flow was a mystery I had to master if I wanted to succeed.

You may find it hard to believe there are individuals with $100,000 a month income who find, at the end of each month, they’re spent more than that. There are businesses in the same position. No matter how much cash comes in, it’s always possible to spend more. The reason some people and businesses bump into this reality is not because they are wanton spendthrifts, but because cash flow itself is a more fluid and dynamic process, more subtle and challenging to master than a simple balance sheet. But master it you must, if you want to be in control of your money; master it if you want to survive in business, because without cash, no one cares if you’re worth a million dollars on paper or in widgets, the doors will shut and you will be out of the game.

If you get a handle on the dynamics of your cash flow, that act alone will both improve your business and improve you as a manager, the beginning of a very positive and powerful cycle.

Jeff Cornwall has some thoughts on that in Why Cash is King:

“There are four key reasons why watching cash flow in a business is more important than ever.

First, you can anticipate greater uncertainty of sales over the next several months. Most businesses are seeing smaller and less frequent purchases by customers.

Where a strong cash position is particularly important is during “sales shocks,” which can occur when large, steady customers suddenly stop ordering. If this is because they have found a better price from a competitor, you have a chance to win them back. But, more and more businesses are waking up one morning to discover that one of their longtime customers has suffered a business failure.

Secondly, as I have written about in the past, bank credit is getting more difficult for small businesses to obtain and some entrepreneurs are beginning to have their loans called by their banks.

SBA loans are drying up

The news last week that the Small Business Administration loan program funding also is drying up makes finding credit even tougher. SBA loan funding is down more than 50 percent from this time last year. The SBA program offers guarantees for qualified small-business loans.

Third, just as your business may be feeling the effects of the economic slowdown, so are your suppliers. You should anticipate that your suppliers may begin to tighten their terms on trade credit to help shore up their cash flow.

Some may even begin to refuse to sell to you on credit, even if you have been paying on a timely basis in the past.

Finally, even in a bad economy you may find new opportunities. Don’t count on any external sources such as banks or investors to fund new initiatives.

If you do not have the cash to fund expanding into new products, new markets, or even to buy up struggling competitors, you may not be able to pursue these opportunities.

If you do not do so already, watch your cash flow statements very carefully. And if the business starts to have consistent negative cash flow, you need to also measure and monitor how long your current cash will last.

Develop weekly, monthly and quarterly cash budgets to help make decisions on which bills need to get paid, or can get paid, and when.”

As I mentioned in a previous post, using Mint.com to track your cash automatically might be a big help to watching over those nickles and dimes and greenbacks.  Because a Mint screen shows the cash you have on hand and the debts you owe….your credit cards, for example, it can be a bit of a bracing shock, if you have less cash on hand than the amount you owe, even though you’re paying your credit card debt off over time.  Nonetheless that shock of staring your finances square in the face and watching them shift may be the shock you need to swing into action, get vigilant, get thrifty, make changes and survive.

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7 ways I’ve Almost Killed My Business

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7 ways I’ve almost killed FreshBooks.
Mike McDerment is CEO and Co-Founder of FreshBooks , an online invoicing and time tracking service that helps professionals in over 100 countries save time, get paid faster, look professional and focus on what they love to do — their work.

Mike McDerment

As AdvancingWomen.com‘s President/CEO, and a serial entrepreneur with a long string of businesses behind me, I’ve had the opportunity to kill a whole list of businesses and, believe me, it’s not as hard as you might think.  Here are a couple of points that Mike makes that reverberated most with me:

Thinking we had to spend more than we did.  It is always tempting to think there are “silver bullets” that will create instant success, but that is totally discredited by reality.  If there is any kind of very slow motion “silver bullet” , it is the opposite: it’ hanging on to your money so you can keep slowly and painstaking building your business based on the value you provide. ( And I speak as one who survived the dot com crash and a whole host of others in various industries, each thought to be a catastrophic devastation and they were, for those who had no cash left as the dust settled.)

You may find it hard to believe but there are individuals with $100,000 a month income who find, at the end of each month, they’re spent more than that. There are businesses in the same position. No matter how much cash comes in, it’s always possible to spend more. Master your cash flow if you want to survive in business, because without cash, no one cares if you’re worth a million dollars on paper or in widgets, the doors will shut and you will be out of the game. If you get a handle on the dynamics of your cash flow, that act alone will both improve your business and improve you as a manager, the beginning of a very positive and powerful cycle.

Here’s an excerpt from a list of ways that Mike McDerment says he almost killed FreshBooks over the years:

1. Thinking we had to move faster than we did
I remember back in 2005 feeling that if we did not blow our lights out and spend every penny we had on marketing “right now!” someone would obliterate us. … Turns out I was wrong.

2. Placing my faith in a spreadsheet
Rocking a spreadsheet is important in my books – it gets you thinking about your business. But trust me, whatever numbers come out of your Excel jockeying, they’re wrong. If you saw our business plan from 5 years ago you’d see what I mean…

It’s really easy to stare at a spreadsheet and say, “that’s it! I totally get this business…I understand how it all works and look at that year 5 revenue!”, when the reality is it will take 10 years to get there, cost you twice as much as you thought, and you’ll probably be running a totally different business by the time you get there. All of that is okay in my books, just so long as you don’t actually delude yourself into believing what the spreadsheet tells you.

3. Thinking we had to spend more than we did
There is something about the act of spending money that breeds confidence – don’t ask me why. Just because you are spending money does not mean things will work out like you modeled them…There are no silver bullets, so don’t kid yourself into thinking there are.

4. Placing my faith in consultants
Nobody cares about your business as much as you do, and frankly people who are smart – consultant/MBA smart – don’t know your business as well as you do despite the fancy words and references to past success. Don’t kid yourself into thinking a consultant knows your business better than you.

5. Underestimating word of mouth
This one is sort of tied to number one. It takes *years* to generate word of mouth – it’s a slow build, but slow burning fires burn the hottest. So be patient and do your best to take care of your customers/users even if you can’t find a way to measure the ROI.

6. Believing we could not get this far without doing “x”
I remember talking with people back in 2004. Many believed we could not get anywhere without signing a “deal” with a “partner” or taking “VC money” or “whatever”. Here’s my advice: sign the right deals with the right partners at the right time for the right reasons. You can build a business without being forced to work with the wrong people at the wrong time for the wrong reasons. The choice is yours – don’t forget it. Opportunities will present themselves if you keep your feet moving and you string together a series of small successes…

7. Doubting ourselves too much
Over the years I’ve met a lot of smart people and I’ve invited them to tell me what they think. For years people did not “see it” and that exacted a toll on my confidence. Doubt is born out of fatigue and loneliness, and there is a lot of both when you are running a start up. Hang in there and keep your feet moving – there’s still a lot of time for you to change the world. “

AdvancingWomen.com seconds that motion about not doubting and keeping the faith.  Building a business is a long haul, sometimes exhausting but also exhilarating.  If you had the drive and determination to start your own business, and you’re showing any traction at all, just hang in; be vigilant about the downside and the upside will take care of itself; do all the little things right and the big success will come.

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Five Most Important Lessons I’ve Learned As An Entrepreneur – Guy Kawasaki

Five Most Important Lessons I’ve Learned As An Entrepreneur – Guy Kawasaki

Popular entrepreneur, venture capitalist, and blogger, Guy Kawasaki understands business. Guy is a managing director of Garage Technology Ventures, columnist for Entrepreneur Magazine, and author of eight books on innovative business.  He’s a guy who should know what he’s talking about.  Here he expounds on the following principles:

  1. Focus on cash flow.
  2. Make a little progress every day
  3. Try stuff.
  4. Ignore schmexperts
  5. Never ask anyone to do something that you wouldn’t do. ( And he’s funny too… listen to this advice:) This goes for customers (“fill out these twenty-five fields of personal information to get an account for our website”) to employees (“fly coach to Mumbai, meet all day the day you arrive, and fly back that night”). If you follow this principle, you’ll almost always have a good customer service reputation and happy employees.

But the most important of these, AdvancingWomen believes, particularly for start ups, is

“Focus on cash flow. …cash is what keeps the doors open and pays the bills. Paper profits on an accrual accounting basis is of no more than secondary or tertiary importance for a startup. As my mother used to say, “Sales fixes everything.”