“Revenue is vanity, profit is sanity, cash is king”
Why it is important to understand the meaning behind the phrase and why it’s important for nearly everyone to grasp the basics of financial management.
Many small businesses have a great idea, a promising product, but not the knowledge to understand that cash is king, without it, the business will not survive. If turnover is vanity then it can be about your ego, but revenue does not equal profit or success if profit is sanity – it’s the reason most people are in business, then cash is reality – it’s what keeps the doors open.
29% of businesses fail because they run out of cash. 20% fail in their first year and 60% within their first three years
These statistics are not weighted towards success, so what can you do to help your situation.
Cashflow is not rocket science, it doesn’t need your accountant or bank manager, what it needs is for you to take the time to know and run the numbers, and if not you, then who? It can take as little as 10 minutes, but knowing where you are at with cash, starts the week off with a reality check of what the next priorities are.
Cashflow is the No. 1 priority for my team each week, we always start the week knowing where we are at and where we need to be. It’s about systemising a process and running them (all of them) every week, irrespective of whether cash is good or not. Practice being the squeaky wheel (getting the grease), before you really need it
We run our numbers every week, we try and plan End of Week, End of Month, and then 3 months in advance, this gets harder, but early planning and communicating with clients & suppliers is a must
Our No. 1 Value is “Integrity” – Do what you say you are going to do. We live this value, by paying our suppliers on time, contacting them with any change or delay, and always keeping them in the loop. We never tell them what they want to hear if it’s not possible. It’s about being true to your word. Building trust.
We expect the same from our clients, we want their honesty about when they will pay – not fobbing us off. We can plan around the realistic truth, we can’t plan with false promises.
Having good cash flow is about the relationships you build with both your clients & suppliers, it’s not just about what’s in the bank on any given day.
It’s okay if you are not the best person armed with the knowledge about your cash flow situation, but please do your own due diligence and ask, if not you, then who. Ensure someone is responsible for tracking cash flow and reporting this to the leadership/management on a scheduled & frequent basis. Communicate clearly and early with both clients and suppliers, and keep them updated with any changes.
Try and build your “war-chest” to be ready for unforeseen events, a guide is having 3 months of cash available to process payroll… how many of us have these sorts of resources available to us at hand.
Being truly good at what you do, includes your ability to manage your cash flow.