CASH FLOW, NOT PROFITS

I think people get confused about what’s important in running a business. You know, we talk all the time about the bottom line, the bottom line is profits. People get so focused on making a profit, and the problem is that profits include a lot of things besides cash, and at the end of the day, cash is what you have to have to pay your bills. So, especially in a growing company, it’s critical to manage cash. You can almost ignore profits if you have great cash flow. Lots of really rapidly growing businesses go bankrupt because they run out of cash. I made that mistake early in my business career. We spent money based on the bottom line and then we said, “Oh my god, what’s happened? We don’t have any cash.” The thing you have to remember especially in the beginning stages of your business is to manage cash flow.

Really what I should say is that you need to manage cash flow for the rest of your life.  I’ve seen it happen decades into a business, you can never ignore cash flow. Making a profit is important and paying attention to the bottom line is also important, but the bottom line is not the same as cash. Many people have gotten themselves into trouble because they forgot and now there’s other stuff in profits besides cash. Cash is king. Cash is everything.