June 6, 2013
Cash Isn't King, It's Everything!
2 min read
Topic: Insurance Sales Insurance Agency Management Insurance Agency Growth Strategies Start an Agency Grow an Agency
As a new business owner back in the day I wanted to be sure we ran our business professionally from the beginning. So, we started our agency from day one with an agency automation system so we could track activity, customers and accounting. I believe this is critically important, and plan to elaborate on that in future posts, but not today.
As we started the business, like practically everyone else, we did it on a shoestring. And it was an old, ratty, shoestring with frayed ends at that! To say we were careful and conservative with money would be an understatement.
Before long, business was flowing through the doors and we were off and growing! As we grew we hired people and bought stuff. And we paid ourselves commissions on what we produced, but we left our “profits” in the business.
All was well for a year or so. Then, one day, the temporary bookkeeper came in to tell me we were overdrawn with an account current check! That was a very frightening day! Obviously, we lived through it, and I learned something very valuable I’d like to share with you.
You can’t spend Profit!
Now, maybe you already know this. But with a couple of college degrees and an MBA between us my partner and I didn’t really have a clue. You see, there are a lot of non cash things that flow through a P&L, and timing issues means that often there is no cash in the bank to represent the profits. Also, accelerated depreciation (Section 179) can really distort the difference in profits and cash in a growing business!
We were a successful, rapidly growing agency. The very picture of budding success. We were also very nearly bankrupt!
So, take my advice please! Prepare a cash flow statement every month. If you don’t know how have an accountant do it for you and explain it to you! Make sure you don’t take too much cash out of your business.
Profits are great. This is especially true for the government because that’s what they tax us on. But as the owner of a growing agency, profits are a side issue, CASH is everything!