LESSON: Focus on cash. Nothing else matters if you run out of cash. Don’t take the usurious loans with crazy interest rates and aggressive repayment schedules. You cannot survive these. Treat cash as the most precious item your company gets, has, and spends. You can get fancy with the P&L and Balance Sheet later, once you have not gone out of business.
The below lesson is an excerpt from my business course, Building Special Companies, Ash Press, 2019.
You’ve seen the wildly successful local restaurant with packed tables until the day the doors mysteriously close and the real estate sale sign goes up. What happened? The P&L looked fine, they were hitting their $2 million revenue mark, but they didn’t understand how cash flow statements many times have very little to do with profit and loss statements.
Today, so many companies come to our firm in an upside-down position, needing cash, needing a plan to work their way out of a seemingly impossible situation. Entrepreneurs, my favorite humans on planet Earth, always believe they will work their way out and more sales will make everything okay.
Startup entrepreneurs give a great pitch to family and friends, and maybe even angel investors or venture capital partners, and then spend that cash like addicts on things that are not critical to existence.
As these companies today approach our firm, I always initiate conversations with, “The only reasons I know these things is because I have made more mistakes myself than any business leader in the country!” (Just read my books for proof). If I would have not continually reinvested our substantial profits back into the company for super growth, I would have had the $50-$100 million in the bank account to pay the regulators and have them move onto the next investment firm, who then also wrote them a large check (embarrassingly with the same money the government gave them in bailout). And of course, when I say government, I mean you.
But what a waste if we didn’t learn from all the mistakes I have made, plus all my fabulous current partners have made, and help younger CEO’s and entrepreneurs avoid critical errors.
Cash is King. Ensure you have a very detailed Cash Flow Statement moving forward for at least three months. In Companies under $10 million revenue, don’t worry about the profit and loss statement the accountant or controller gives you. Live and die weekly with the Cash Flow Statement which shows what checks we have coming in this week and who do we need to pay this week. If you micromanage this just once a week, you will be light years ahead of most entrepreneurs.
If you are already in this precarious position, educate yourself on Chapter 11 Subchapter V restructuring for small businesses which was put in place in 2019 to make restructurings and workout plans available to smaller businesses. But better yet, micromanage these issues from day one so you are not part of the very high percentage of small businesses who look great, until they don’t.
Have a great week!
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