Cash is King

Cash is King

I have so often come across entrepreneurs saying that making money was not the most important part of launching a venture. They were not talking about happiness or what becoming rich may do to the entrepreneur’s life. They were talking about generating revenues… Their thinking goes like this: first you build traffic (if we were dealing with a web based venture) then once you have built that traffic you start generating income. Fair enough. However, they were always short on answering the question of what they were going to do UNTIL they start generating a revenue. The usual response was: look at the acquisition of XYZ, they made a ton of money and they were still not generating revenues; we will do the same. As I mentioned in a previous post, the very successful acquisitions are one in a million and should not be taken as a “normal” likelihood. The failed ventures due to a lack of funds are so common that the first line of defence is to make sure that the venture has enough cash. When I first heard the phrases “cash is king” or “cash is more important than your mother”, it stroke right at the heart of my experiences. When bootstrapping a startup or turning around an existing business, it all comes down to the same: how do you survive? Because at the end of the day, it is a game of survival until the breakthrough that will set you on a successful path (and even then cash is still key). Your employees can stick with you for a certain amount time on the vision of changing the world but if they depend on the job to eat and live, words and vision will seldom suffice: a salary will. The same goes with your suppliers. They can be understandable up to a certain point. Then they will just stop supplying you until they get paid. Even your investors can be understandable as they (should) have a longer-term view and a knowledge of what the entrepreneur is trying to achieve. But there will come a time, where they will stop pumping money into the venture if they don’t see clear indication of revenue generation. So cash becomes a crucial aspect of your venture. No customers, no cash. It is as simple as that. When cash is limited you have to manage it as preciously as it actually is. Is the money invested in marketing bringing the right return? Is the employee hired bringing value to the venture? Is the money spent on acquiring customers to get revenue? There are many ways to preserve cash or invest it wisely. Whatever your approach, you have to know exactly what your cash position is, your forecast for the few weeks, the potential income you will generate (and when you will actually getting paid). And if you are short on cash, you need to know your contingency plans and apply them. Cash is king because it rules your venture. Because if you run out of cash, your venture will be dead.

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