Cash is King, and every other business consideration is merely a poor pretender to the throne of a troubled company.
When a company is in trouble, its management needs to focus like a laser on cash, asking these questions:
1. How much do we have?
2. How do we get more?
3. To whom must we give it?
These three questions should form the basis of every decision the management of a troubled company makes.
Stop worrying about market share, profit margins, sales trends, capital expenditures, etc. – except as they are directly related to cash. You have to survive before you can worry about these more traditional business issues.
We Need Cash, STAT!
Think of your troubled company as a patient in the emergency room. The ER doctors start with the ABC of survival: airway, breathing and circulation. They don’t look for broken bones; they make sure the patient has a clear airway, is breathing and isn’t bleeding out.
Now think of cash as your troubled business’s oxygen and blood.
1. Your first step is to clear obstructions to your cash picture. How much is in the bank? How much are your held checks? Are there any customer checks not in the bank?
2. Check your company’s breathing. Is there cash coming in? Are there leaks in the windpipe? Are your customer checks getting to the bank quickly? Are you getting immediate credit for your deposits?
3. Finally, is your cash leaking out? Are your expenses/cash disbursements going on the floor? Can you apply a tourniquet to the wound and staunch the leaks?
And consider hiring a specialist to help you. When you go to the Emergency Room, you see ER specialists, not the family doctor.
Once management identifies these first critical answers, it needs to expand its analysis by applying some time measurements and adding some details to its cash picture, both current and projected.
That, we’ll talk about in next week’s post – so stay tuned!
What are your experiences with your business and cash flow? Any questions?
Want to learn ways to avoid being bitten by the alligators and keeping cash at the top. Check out this classic post.