Transforming Your Cash Concerns

Posted by Chuck Kocher
On September 8, 2017

Any business interested in growing exponentially knows the pain of running short on cash. It’s been said that nothing burns through cash faster than a growing company. If you are serious about growing your business, your cash concerns can change dramatically. Let’s talk briefly about transforming your cash concerns to accommodate growth.

First of all, some businesses think that an infusion of cash will help them “break through the wall” and solve their financial needs. And while that may provide some short-term relief, the problem probably runs deeper. If you’ve been thinking about hitting up investors or “angels” to help you through your cash crisis, you might want to take a look at this recent post from an angel investor entitled, “If you want my money, you’ll have to answer to these four questions . . .” It’s an eye-opening look at how those with cash to invest look at “opportunities.

To be honest, however, simply getting an infusion of cash won’t solve your business growth problems. What you may need to do is transform the way you think about money and the way you manage it.

In Scaling Up, Verne Harnish talks about “The Four Forces of Cash Flow.” Because cash is such a critical factor for growing/scaling companies, this is important stuff. Let’s take an “eagle’s-eye” view of these four forces and what they mean for a company that is trying to move to the next level of performance, profitability, and growth.

  1. Taxes
    Almost 280 years ago, Benjamin Franklin penned the well-known words, “but in this world nothing can be said to be certain, except death and taxes.” Some things really don’t change much over time. It’s important to be in a cash position that ensures you’ll be able to pay your taxes without getting hit by a big surprise. And it’s also important not to fall victim to the myth that it’s worth spending $1 to realize 40¢ worth of tax write-off.
  2. Debt
    While there are exceptions, for the most part, debt is not your friend. In fact, it can cripple your business and keep it from growing. Even Shakespeare was wise to this fact when he wrote: “Neither a borrower nor a lender be, For loan oft loses both itself and friend, And borrowing dulls the edge of husbandry.” (Hamlet, Act 1, scene3). That doesn’t mean you can’t borrow when appropriate, but you need to manage your debt and get it paid off quickly so the funds don’t become a false sense of security.
  3. Core Capital Target
    In simple terms, achieving your core capital target means that you have two months of operating expenses in hand (in cash) after you’ve paid (or set aside) the money to cover existing expenses (including debt). The goal isn’t just to have a zero balance at the end of each month. It’s to have funds that will allow you to grow.
  4. Harvest Profits
    If you’ve met your core capital target and paid all expenses and taxes, a great way to “harvest” your profits (whatever still remains) is to take your after-taxes profits and distribute them to employees. Your employees may not work just for the paycheck, but it’s hard to underestimate the impact that financial reward has on moral. It’s one of the best ways to demonstrate to employees that their commitment pays rewards.

As I mentioned above, this is a very “high level” look at these important issues. Putting this into practice is a whole different story. I’ve helped many companies figure out how to make these turn these principles into reality. Contact me to find out more about how you can turn your cash concerns into practices that will propel your company forward to new levels.