In life, money isn’t everything, but in a start-up, it is. Many entrepreneurs, investors and business analysts have written and talked extensively about this topic and, having developed our first business to the point it is now, only now can I truly appreciate why.
Tracy Eden, National Marketing Director for Commercial Finance Group recently summed up the importance of cash flow in a blog post back in May. She said “One of the biggest financial mistakes many small business owners make is focusing too heavily on profitability at the expense of cash flow. There’s an old saying that sums it up well: ‘Profit is Queen, but cash is King’.”
Trying to run a start-up without cash flow is a bit like trying to play the final of the Champion’s League when you aren’t fit enough. It is so integral to the success of a venture, that even if you have the best product or best employees, if you can’t keep the show on the road, there’ll be no show.
Perhaps one of the most exciting things about knock-out competitions like the Champion’s League is the fact that it can go to extra-time or even penalties! When the latter happens, often the winner, who comes out, is simply the team that was physically able to keep going the longest.
Let’s say for example the ball in this football match is your product and that if you use the ball/product well enough to score more than you’re opponents, you’ll win the match. For the purpose of this analogy let’s associate winning the match to selling your company or landing that huge customer.
Now your team all has to work together to score enough goals so that you beat your competitors and ensure you achieve the ultimate goal. One of the problems however, is that this is a final, and you don’t know how long it’s going to take to win this match. It could be 90 minutes it could be 120 minutes or it could even be 120 minutes plus a penalty shoot-out.
As a result of this ambiguity, the management team’s job is to ensure their players have the fitness levels to be able to get to the end of the match whatever the outcome. If they don’t have the fitness then they’ll start to get injured and the team could crumple and miss out on the end goal by the narrowest of margins.
Let’s think of the manager, in this case, as the CFO of the company and, the fitness of the players, as the company’s cash flow. As players and whether you play in attack (sales), midfield (marketing) or in defense (product development), you will be relying on the management team to have given you the adequate training to ensure you have the necessary physical reserves to achieve the goal for the team.
The team that has the reserves to keep going will be in a much better chance to win the match than the team who doesn’t. It’s really as simple as that.
So, if you keep cash flow as your number one priority, it’ll keep your dreams of success still alive.