In 2003 I had had enough with working at a job where the managing partner of the CPA firm would berate us on a regular basis. I’ll never forget the day I was driving home from the Santa Monica based CPA firm to my small apartment in Hollywood, and I was balling. At the time, I was three years sober …
“I’m very liquid”, you hear the giants of industry say. I think we all jump to the conclusion that the person making the statement has a lot of cash. In general, we would be right. Liquidity by definition is a company’s ability to convert its assets into cash to pay its liabilities. It’s often expressed in the form of ratios like the current ratio. But few people understand the state of liquidity they might be in and how to become “liquid”.
Understanding cash provided from operating activities is critical to comparing the financial information of like companies. A few issues that make this difficult are the different ways certain transactions are classified. To date, the accounting industry has largely ignored trying to make comparison, but analysts have tried a couple of different measurements to level the playing field.
After over 20 years in small business, the feeling never goes away totally. There is always something that can keep me awake at night. This is especially true when it comes to cash flow. I get so wrapped up in all the routine tasks I do daily, that controlling the cash that runs through my business becomes an afterthought. Cash flow management is a forgotten discipline by most small business owners. Although you can feel like you don’t have enough cash, by the time you see it on paper; it’s usually too late.
In an economy where the stakes are increasingly high and cash progressively scarce, business owners must proactively manage the balance sheet and income statement or risk falling victim to the five silent killers of cash flow.
It’s amazing how cash can slip through the fingers of even the most frugal small business owner. It just happens without you realizing it. It’s not like anyone walks out the front door of their house and says, “I’m going to spend all the cash in my business, so I have to struggle to make payroll.” For some business owners, this is never the case, but for others it is an ongoing struggle.
In 2012, I learned a valuable lesson. It’s not something you hear about from your family or friends. Most never wish to speak about it publicly and most never bounce back. Me, on the other hand, I bounce back from anything, and I did in fact bounce back from this. But let me tell you…it was NOT easy. Cash flow killed my company of 12 years and left me holding nothing but debt, summons, liens and lawsuits.