MY CASH FLOW STORY

It was February 14, 1988; I had left a cushy VP Finance job at the second largest floral wire service & gift container company in the world and took the position of CFO for an entrepreneurial start-up/turnaround. Why? For the thrill and experience of taking a struggling natural foods snack bar manufacturer from the health food industry into the mass market.

 

I had only been on the job for one week when I got the phone call late Sunday afternoon. Valentine's Day. The Controller had been working the weekend, crunching numbers. "We can't make payroll next Friday," he said. Three hundred employees. No cash. No credit line left.

 

Talk about a punch to the gut. In my prior life, I had worked for Fortune 500 companies (Mobil Oil, Mattel, PepsiCo) in financial roles and had never experienced cash flow problems. At Taco Bell (PepsiCo subsidiary, at the time), I was the cash manager handling $250+ million in annual cash! Never a problem.

 

I did my best to enjoy Valentine's Day with my wife and family, then got into work extra early Monday morning to execute my game plan. I thought about my predicament for about 15 minutes while mentally flashing back to my undergraduate and graduate business school finance classes. What came to mind was a classic textbook response: reduce outflows and increase inflows.

 

So I put a strategic halt to vendor payments and then went through our Accounts Receivable, identifying all major accounts with late or significant outstanding balances. I proceeded to dial for dollars, offering sizeable, one-time discounts if they paid their outstanding balance that week. Then I went to each office and collected the checks myself. We made payroll and I learned an invaluable lesson: Cash is King, and nothing ages an executive like being short of cash!

 

I immediately implemented a daily cash report as well as weekly, monthly, and quarterly cash flow projection reports and ensured cash flow was discussed at each week's operations meeting. We also implemented many cash flow management strategies and KPI's for tracking results.

 

I wish I could say we never had any more cash flow problems but, when you grow a business by ten-fold in six years, you're going to have challenges. The difference is, I always knew where we stood from a cash position.

 

Despite showing a decent quarter from a profit standpoint, everything that looked solid on paper meant nothing. That moment taught me a fundamental truth that most business owners never discover: profit and cash flow are not the same thing. And focusing primarily on profit can create constraints that limit everything you're trying to build.

 

From there, I went on to be involved in several bootstrapped SMB start-ups as well as taking on the turnarounds of four different struggling business units of larger firms. Cash flow was always top of mind, and I never forgot the lessons learned at my first entrepreneurial company.

 

Final comments...

Growth and expansion are the dreams of every entrepreneur or business owner who wants to take their company to the next level. It's certainly mine! Don't forget, virtually every large multinational corporation that we see today most likely started out as a small business, only to grow and expand over the years. While it is true that continuous positive cash flow is a great sign of a healthy business, it is important to manage it correctly.

 

Business expansion is extremely difficult to achieve, and statistically speaking, over half of newly established companies fail within the first five years. Why is that? Because their cash flow is not properly managed.

 

You have the vision for growth and the team to execute that vision. We provide a laser focused Cash Flow System, tools and training. That combination results in long-term, sustainable growth in cash flow, profits and business value for your firm.

 

Whether you utilize our services or not, for your own sanity and for the success of your firm, implement a cash flow management process and philosophy at your company. You won't regret it. Best of luck to you and your firm.

 

May your cash flow always be positive!

 

Regards,

Robert Livingston