Cash is King
In 1996 I nervously approached Day 1 of investment banking in New York. The training program would last about a month and we were all bright eyed, anxious, committed, and less than humble. Frankly I couldn't even believe I landed the job (a different post for a different time) but I was ready. The trainer for the program was a guy who made such an incredible impression on me. His name was Paul Kushel, but he went by "Cash" and he managed to make even the most mundane accounting topics crazy fun and exciting (I know, I have issues). You can read about how he got the name Cash here but it wasn't because his wife's name was Flo (that's run of the mill accounting humor). Cash left a big impression on me and an impression I want to leave on you. When it comes to business: CASH IS KING. Know it. Love it. Lean into it.
The Language of Love
A lot of entrepreneurs and business owners want to build a business but loathe accounting. But accounting is a language everyone needs to understand. If you drove around without a dashboard panel on your car, you'd have no idea when you were about to run out of gas or a light went out or the oil needs changing. Accounting is the same thing and it's important to understand the dials. The most important one being CASH.
It's a River
Yes, cash is a snapshot. You can look at your bank account today and see how much cash you have at this very moment. But cash flows like a river. There are inlets and outlets and unknown waterfalls and downstream obstacles. Cash is not about your current balance. It gets used to pay vendors. It is received based on invoices. It covers your payroll and taxes. It buys your supplies, fixes broken equipment, and excess amounts fund new investments. The ins and outs of cash show up on a cash flow statement. It's cool to see how the river flows. Don't ever think the river stops flowing. Lean into the river and understand how it moves.
Book it Baby!
Early stage companies are often hungry for cash, for the river to flow. The problem is that the riverbeds can be a little dry. Getting cash into the system to sustain the business can come from closing a sale and getting paid up-front. If you sell a contract for $240,000 for a year worth of work, collecting that $240,000 today would be, well....AWESOME. Now because it's a year contract you are only going to recognize $20,000/month on your income statement but you got the cash. So your income statement may not look that great on monthly basis but Cash is King and you collected (you booked it).
Unlock the Value!
Your Company is valued based on the flow of cash in and out of your business. Companies buy other companies based on the amount and timing of those expected flows. Sometimes those flows might not be expected for a number of years (think early stage technology acquisitions) whereas others cash flow immediately. What a Company is willing to pay today for those future cash flows is based on a calculation that looks at the future and asks, "What would I be willing to pay today for that future flow?" The calculation is called a discounted cash flow analysis and it is trying to tell the future to agree on a purchase price today. The better your business is at demonstrating control over your cash flow (and being able to help a buyer understand how it will grow), the more valuable you will be.
I see a lot of entrepreneurs struggle to build their businesses because they don't have a good enough handle on the flows in and out of their business and all the ways they can best channel those flows down the most efficient part of the river. Seemingly great businesses hit rocks they could easily avoid simply because they lost sight of the panel on the dashboard, or never really had one in the first place. Don't be that business.
I learned a lot on Wall Street (like what it's like to sleep under my desk) but arguably nothing more important than what I learned from the famous, Cash Kushel. Cash is King Baby!