How many distributors have gulped when they heard, "Not to worry; we're just having a few cash flow problems?" How many of us, following a huge month and still coming up short of the cash we need just to get by, gulped and wondered what was going on?
The whole subject of cash flow is much more crucial to our businesses than we care to admit. It is also far more complicated. What is cash, anyway? Currency? Available balance in a checking account? How about a money market account with a minimum deposit and minimum check-writing limit? How about a 30-day CD? A T-Bill? A mutual fund account? Stock equity? We're pretty sure that the following, though assets, aren't cash: accounts receivable; loan balances owed us; inventory; and fixtures or equipment worth money.
About some others, we're not even sure if they are assets. Change orders approved but not completed; a nice fat signed contract, but one which doesn't start for six months; jobs finished but sitting on the shop floor waiting to be installed. What of cash in our checking account that we don't know if it is an asset or liability? For instance, nonrefundable deposits on jobs not started?
The first truth is that all these are part of our cash flow picture. Every single one has directly to do with cash flow. The next truth is that there is an important difference between cash flow and cash management.
Business is about risk (nothing ventured, nothing gained). Unfortunately, a severe cash flow shortage at just the worst time can, and has, destroyed many a well-run business. I like to think of the Exxon Valdez, gleaming super tanker, marvel of modern ingenuity, as a symbol for our business. Tipsy from overwork or bad cash management, we make a piddling mistake-two degrees-and Bligh Reef, that lurking cash flow shortage with us trapped in a narrow channel, punctures the hull and turns the world into a nightmare.
Cash flow shortages don't just fall on us like rain from the sky. The distributor knew that and that's why he gulped. The puzzled owner with the cash shortage after a good month didn't know and that's why he gulped.
We have to manage our cash flow just like we manage the rest of our business: regularly and rigorously. Every one of the cash items above requires a management decision.
It is in how we make these decisions that I think we make our mistakes. We can't get rid of the myth that cash flow belongs with accounting and bookkeeping. Nothing could be further from the truth. To steal a quote that's appeared in so many business books I don't know where it originated: "Running the company from last month's financials is like driving a car by looking in the rearview mirror."
Here are just a few suggestions to jump-start a new and better way of looking at cash management: