Year of cash
I’m sure you’ve heard the phrase, “cash is king.” If I only know one thing about running a business, this would be it. The number one reason businesses fail is under capitalization, which is just a fancy way of saying they run out of cash.
A recent article in Inc. Magazine featured a conversation with Jim Collins, author of several best-selling business books including Good to Great. The article was aimed at giving advice on how businesses can thrive amid the chaos and uncertainty of the times.
In this article, Collins discussed an idea that I find extremely wise and practical. Collins keeps at least one year’s operating budget in cash at the bank all the time. His company could go an entire year without a penny of revenue. His goal is to eventually build up three years of liquid operating cash.
This cash shock absorber empowers Collins and his team to focus entirely on their work. By not constantly chasing cash to make next week’s payroll, they are able to chase after what really matters. And because they are focusing on doing great work that is highly sought after, sales and cash should inevitably follow.
Can you imagine? What would it feel like to know that your business could run for an entire year (or three) without making a penny? I can’t answer that question because I’ve never been there. But I want our current company to get there, and if/when I start my own company, I want this to be a top priority.