Last week I had dinner with Ken Jacobs who said to me, “I was shocked to see you almost went out of business last year. What happened?”
When I blogged about it earlier this year, I used the word “bankrupt” and that got everyone’s attention. Yes, we nearly went bankrupt.
You see, we had plenty of accounts receivables to accomodate our expenses and even make a little bit of money last year. But, when the debt ceiling crisis debate ensued last July, all of our clients retracted and went into hiding.
No one knew what it was going to mean for the United States and, in particular, businesses. And, because we’d just had three years of really rocky times, everyone was skittish.
We didn’t get paid from a single client for nearly 90 days. Sure, we’ve done all the things you’re supposed to do: Require deposits upfront, make calls before A/R is late, even stopping work when clients were late. But it didn’t help when push came to shove. We still had bills to pay and nothing to pay them with, except signed contracts that showed the money was coming.
I don’t blame our clients. We did the same thing to our vendors and partners. I blame myself.
I forgot one really important thing: Cash is king. And we didn’t have any cash.
We did everything we could. I stopped taking a salary. We got out of our office lease, which also meant no utilities, no copier/printer/server costs, no paper costs, no DSL costs, and no phone costs.
We cut significantly. To the barebones.
And that’s what got us through. But we did it almost too late. I was taking any kind of speaking engagement I could get, because those pay upfront, just to make payroll and not bounce those checks. I had come to terms with the idea that I was going to have to close the doors, after six years of being in business.
But then checks came in, we got caught up with our past due bills, and 2012 became the year of growth. Almost overnight.
I’d heard “cash is king” in my Vistage meetings and in everything I’d read about running a business. Deep down, I knew we had to start saving. But the economy was terrible and we had enough to live payroll to payroll. So I wasn’t worried. We’d make it.
We did make it, but not without a level of stress I’ve never experienced (and never want to experience again).
You can hear cash is king over and over and over again and perhaps you’ll think of it the same way I did. Instead, I hope you create a cash account that has a minimum of 90 days expenses in it. This goes for both your business and your personal lives. And, sometimes, it’s not enough to grow revenues or ask for a raise. Sometimes you have to cut expenses – a lot – in order to get yourself in a cash positive range.
We’re back to cash flow positive this year and you can imagine what that does for morale and motivation throughout the office. Always, always make sure cash is king in your business.
An excerpt of this ran as my weekly Crain’s column.