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Gini Dietrich

Cash Is King Or You Are Dead

By: Gini Dietrich | March 19, 2012 | 
138

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.

About Gini Dietrich


Gini Dietrich is the founder and CEO of Arment Dietrich, a Chicago-based integrated marketing communications firm. She is the lead blogger here at Spin Sucks and is the founder of Spin Sucks Pro. She is the co-author of Marketing in the Round and co-host of Inside PR. Her second book, Spin Sucks, is available now.

132 comments
Tinu
Tinu

Yeah, Cash is Emperor. Glad to hear you go through the though times. I used to get through tough cash times by creating or promoting products but now I never seem to have the time with our company's current client roster. We definitely need to hire someone.

kamichat
kamichat

Your honesty is really refreshing here Gini. It is the absolute truth, even a few months can kill a successful business.

Latest blog post: Beth's Back!

Marcus_Sheridan
Marcus_Sheridan

One of the best pieces of business advice I've read online in a long, long time Gini. If only more folks discussed "reality" the way you do.

 

Thanks so much,

 

Marcus

BestRoofer
BestRoofer

Gini, Thanks for another great post that I can relate all too closely with.

geoffliving
geoffliving

Your transparency is admirable. I always had two months of payroll around and roughly six months of billables out, plus credit. When the market crashed in 2008 this let me keep staff on for six months, even though we lost 80% of our retainer business.  I still really freak out when I think about those times, but feel like I went above and beyond my obligations to keep people employed as we weathered the storm.

blfarris
blfarris

@econwriter5 Wasn't that post from @ginidietrich terrific. Both a great example of transparency & good advice.

JamesBSchultz
JamesBSchultz

Cash is always squeezed when you are growing...I always try to keep at least 180 days and make sure I can survive a worst case 24 month rolling cash projection.

ExtremelyAvg
ExtremelyAvg

I must have missed that post about you nearly going bankrupt.  I'm glad I did, it would have really upset me.  Even this one, which has a happy ending, was painful to read.  I'm so pleased you made it through.

 

You are right, cash is king.  I've been living for years on as little as I possibly can.  I save up just enough to hire an editor, and then I'm broke again.  Still, I'm much happier than when I was making 75K per year, because I get to write and it is fun.

 

I fell into nearly 8K of inheritance and it allowed me to finish my last book and publish.  I have a little left over for my  next book, but then I'll be out of money.  It is okay, though.  I'm following my dream and there is a lot of value in that.  Your advice is important and hasn't fallen on deaf ears.  The first thing I will do when the day comes that I'm selling a pile of books, isn't buy a car, it is build a cushion.

Latest blog post: 22 Things for Me To Do

KensViews
KensViews

And now I know why you insisted on paying for dinner :)

 

blfarris
blfarris

@seanmcginnis That was a good one from @ginidietrich wasn't it? She's so good at making a biz situation personal.

ryancox
ryancox

I wish I had some big "business" example where I can say, "________ me too." I don't. But I've experienced it on a very much smaller consultant-business side and in my personal-business side. Playing banker to clients, even small and friends, even best -- never works out. I speak from experience, and learned through many "please clear please clear" prayers that cash really is king @ginidietrich . That $120 what-the-hell-did-I-do-night ... no matter how fun, would never be more fun than a i-am-so-glad-i-planned-for-this-90-fund.

 

Gini is the bestest. Even if she doesn't respond to my text same day. She'll respond. And she's always unfairly smart and uncommonly kind. Great post, and I say that because it's a real post, about real problems from a real person. (not because people say great post _____ in comments)

 

Sorry about Creighton. But they did win the game I picked them to. So ha!

Andrea T.H.W.
Andrea T.H.W.

I second your opinion. The thing I liked more about Microsoft is that they routinely had and I think have one year of cash put aside so that whatever happens they have a full year to work on it. Not that with this economic crisis, which isn't near its middle, that's enough but it's a wise tactic.

 

Glad things are fine now. :)

Latest blog post: Overcoming Fear of Clowns

blfarris
blfarris

Gini;

 

You aren't alone - as I wrote in my newsletter last week we are seeing a lot of this right now. And not just from skittish clients, growing companies can experience a cash crunch too. As sales grow, so do receivables and pretty soon you've loaned your clients so much money you can't pay your bills. (see more here: http://www.anchoradvisors.com/pages/article_view/22.php?aid=91)

 

In the meantime there's nothing that warms my heart more than money in the bank!

 

Brad 

John_Trader1
John_Trader1

Nifty timing on this post as today Apple decided to spend part of it's $100 billion cash hoard on dividends and stock buy back (*yawn*). Now there is a company that  is good at keeping a good amount of cash on hand.

 

I particularly like this post for its practical applications to our personal lives, in which saving a few months of expenses is often overlooked by so many. Dave Ramsey does a great job of hammering this home and its a message echoed here in your post. Thanks for the important reminder.

hackmanj
hackmanj

and thank goodness you made it, but had you not I am sure you would have rebounded and done something equally amazing... 

 

I used to live by the cash is king philosophy I always aimed for 2 years of reserves and was down to 1 when the recession hit. Had I not I would have lost everything in 2009. Really, really happy that things have improved for you since the bottom fell out! I've enjoyed watching many of my friends and clients rebounding from the crap that has been our economic reality in recent years. Let's all not leave anything to chance now and really go out and kick some butt.

ladylaff
ladylaff

Oh girl, did I EVER learn that lesson the hard way and it makes me feel so much better to know that I'm not alone here on Spin Sucks.  At my last company, where I was managing director for a European team, I was filled with dread and loathing every time we got close to payroll time and even though it wasn't my company, I was first to step forward and sacrifice my own pay in order to take care of others.  Oh the glamour! I suffered from every physical ailment from migraines, to interminable colds to stomach problems to depression.  With amazing support and mentoring from our accountants we got out of the hole, but not before a lot of collateral damage and restructuring took place.  When my business partner (who went through that hell with me) and I started our own company, I declared loudly "AS GOD AS MY WITNESS, WE WILL NEVER HAVE CASH FLOW PROBLEMS AGAIN!"  And although we operate on what some would deem conservative principles, our cash flow now runs like clockwork and I have never been less stressed.  It starts with being very selective about with whom we do business and being very, very clear up front about payment terms and our need to get paid within terms.   A lot of getting paid on time is in the details; making sure we have the right accounting contacts, the right information on our invoices, including clear detail of activities so there are no questions that hold up payment.  Accountants can be a great source of support when it comes to managing cash flow and I would encourage other business owners to tap into their knowledge and experience.

ginidietrich
ginidietrich moderator

 @Tinu Yes, hire someone! Because, without my team, I wouldn't have gotten Spin Sucks Pro off the ground, I wouldn't have been able to do any speaking, and I probably would have abandoned this blog. Definitely hire someone!

econwriter5
econwriter5

@blfarris @ginidietrich Indeed. Terrific post.

ginidietrich
ginidietrich moderator

 @ExtremelyAvg Mr. D was telling me a story last night about his college friends who had enough money to buy bedroom furniture or Kansas basketball season tickets. Guess which one they bought? And now they make money selling them. My point is that sometimes following our dreams is exactly what we should be doing.

seanmcginnis
seanmcginnis

@blfarris She seemingly does it every day. Brought that up recently with someone. Makes it look easy too. cc @ginidietrich

seanmcginnis
seanmcginnis

@blfarris Seemingly does it every day. Brought that up recently with someone.

ginidietrich
ginidietrich moderator

 @blfarris I learned the "don't play bank to customers" lesson very early on. I came from the big agency world so we were doing things like buying photos and paying for printing and paying for exorbitant shipping costs. While we were always reimbursed, it sometimes took 90 days or more and it was really painful. 

ExtremelyAvg
ExtremelyAvg

 @ladylaff I did the same thing once when I was the GM of a candle manufacturing company.  I ended up working for almost half a year unpaid.  I never saw a penny of that money, either.  The owner disappeared in the middle of the night.  Oh well.

Latest blog post: 22 Things for Me To Do

ginidietrich
ginidietrich moderator

 @ladylaff I totally agree with you on the accounting side of things. Until 2010, we worked with one who was completely unethical and was lying on our tax returns. I didn't know about it until I received a letter from the IRS. Talk about shocking. We ended up suing him so it turned out OK, but we also found the accountant we work with now and he is a DREAM. I'm not sure I would have pulled through last year without him.

ExtremelyAvg
ExtremelyAvg

 @ginidietrich  @Tinu Don't even joke about abandoning this blog.  Things I'd expect you to abandon before the blog....Husband, Biking, Your House, Friends, Family...If you are homeless living on the street, you could still log on to the blog at the library and put up posts.  I love this blog.

EricaAllison
EricaAllison

 @ginidietrich Gini, I promise you, this book will change your life! My husband and I took the course (Financial Peace University) last fall and completely turned our personal financial situation around.  I've since been applying it to my business and started facilitating a new class at our church this spring. It's amazing to watch people go through it! I'll have to blog about it, huh? :)

 

Latest blog post: Does Your Marketing Have Game?

ExtremelyAvg
ExtremelyAvg

 @ginidietrich I'm going to guess he chose the season tickets.  I love it!  I suppose he could be a bedroom furniture salesman, too.  Hmm, I'm hoping he went with the tickets and chose to sleep on the floor, that is what I would have done.

ginidietrich
ginidietrich

@seanmcginnis @blfarris Exposed and a little sensitive.

blfarris
blfarris

@seanmcginnis And I'm so lousy at it. Makes me jealous! But I know it also leaves @ginidietrich feeling like she's really exposed sometimes.

ladylaff
ladylaff

 @ExtremelyAvg Oh dear, sorry to hear that.  Good for you for not letting it get you down too much.  I don't think employees always appreciate the sacrifices small business leaders make.  The more I talk about this the more stories I hear of bosses and owners giving up their pay entirely or taking big pay cuts in order to meet payroll.

blfarris
blfarris

@ginidietrich It's your secret genius though. The price of glory... @seanmcginnis

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