The Key To Business Success Is…Cash Flow

Dec 22 2013

The Key To Business Success Is…Cash Flow

by in Blog





Cash Flow

The first four years of my entrepreneurial career were painful to say the least, by the age of 26 I had failed in 4 businesses.  After leaving the corporate life in my mid 20’s in pursuit of entrepreneurial success I soon realized that to be successful in business you had to wear many different hats unlike the corporate life where you are required to wear one. I had to go from being a specialist to a generalist.

After the failure of my fourth business with less then $2000 in the bank account I decided to partner with a friend of mine to start a door to door sales company in an area south of Sydney called: Wollongong

At the time this area of Sydney did not have a specialized sales force and as a result we managed to land some big contracts, scaling from a 2 man operation to over 45 staff within a period of 10 months. It was crazy. It felt good to finally breakthrough and be on the other side of the equation.

But then one day it all came crashing down. What happened next would leave both myself and my partner feeling distort, angry, frustrated, sad all at the same time whilst in total disbelief that the company we worked our ass off to build was about to shut down.

I remember sitting in the office with my partner going through the weeks sales reports, making sure everything was up to date in time for our meeting with our biggest clients.

A meeting that was supposed to go for 1 hour lasted all but 5 minutes when the client walked in and delivered the fatal news that due to cash flow issues of his own, he was unable to pay our invoice for over 2 months.

At this stage we were already facing cash flow constraints at a minor level but this tipped us over the edge to a point where we considered shutting the company down.

After a long walk on the beach to cool down and hours of discussing the options available we both came to the conclusion that there was no way we could go out in this fashion, plus we had 45 other people of whom we were responsible for.

To survive we had to raise $110,000 over the next 7 days. We got our mobiles and called every single person on our contacts list asking for favors, not easy when most of the people who know you re aware that your first few attempts in business were not overly successful

I can proudly say that we achieved our goal within 5 days, it was one of the most intense, stressful yet exciting experiences of my life, one that I will never forget.

It was in this experience I gained my most important business lesson yet: Cash flow is King.  You hear it being mentioned so many times in articles and around the business community but now that I have gone through it, I know why it is such a major component to business success.

One saying is: “revenue is vanity, cash flow is sanity, but cash is king”.

What this means is that whilst it may look better to have large inflows of revenue from sales, the most important focus for a business is cash flow.

To get a second opinion on the matter I spoke with a fellow Entrepreneur Amanda Fisher, founder of Connected Accountants. Not only has Amanda had real life experience successfully dealing with cash flow issues in her own business but as an accountant she now advises hundreds of her clients how to best manage their cash flow through real life experience, backed by her years of knowledge in the industry.

Below she shares the steps any entrepreneur can take to in order for them to properly manage the cash flow within their business:

1) Firstly, it is imperative to have a good accounting system.

Today, that means an internet based cloud accounting system like Xero.  With daily bank data feeds, it takes a matter of minutes to keep the bank account reconciled on a daily basis.

2) Secondly, entrepreneurs must review the accounts receivable (debtors), accounts payable (creditors) and cashflow projections on a weekly basis.

This will maintain the focus on the cashflow and who they may need to chase up to get paid and to do so on a weekly basis.

3) Thirdly, consider requiring payment up-front.

Just because you have a purchaser for your product or service, there is no requirement that you offer them credit terms without checking their financial situation first.  So, ask for an up-front payment, payment in full before delivery, or 50% deposit.

And remember you can have the most amazing service or product in the world, but if you run out of cash, it won’t matter.

Image Credit: Shutterstock.com





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