Gini Dietrich

Cash Is King Or You Are Dead

By: Gini Dietrich | March 19, 2012 | 
139

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, an integrated marketing communications firm. She is the author of Spin Sucks, co-author of Marketing in the Round, and co-host of Inside PR. She also is the lead blogger at Spin Sucks and is the founder of Spin Sucks Pro.

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139 responses to “Cash Is King Or You Are Dead”

  1. jmctigue says:

    I really appreciate your honesty, and your post should be a wake-up call for all small business owners, including me. You are definitely not alone. We can easily fool ourselves into thinking that things are going well, when they really aren’t. Ultimately cash flow and profitability trump everything else. Your 90 day cash reserve rule should be sacrosanct for every business. No one could have anticipated just how bad things would get the past 3-4 years, but we’re all hoping (praying) that we’re climbing back out of that hole. Glad to hear that your company is back into the black.
     
    Best Regards,
    John McTigue
    EVP and Co-Owner, Kuno Creative

    • ginidietrich says:

       @jmctigue It is the most painful thing I have ever experienced. And, because I’m not a complainer and I didn’t want to freak out my team, I didn’t talk about it. I just fought through it. The goal this year is to focus on getting that 90 days reserve so we never have to experience it again. 

  2. crawtd1 says:

    @lararodz How to use your creative talents to make money online @home_make_money

  3. HowieSPM says:

    Cash Flow. It is how Stock analysts look at your business first and foremost. They need to see that your business has positive cash flow that supports the business activities and your goals. It is also why companies that have illiquid assets even if the assets have high value compared to operations, gives the company an increased risk profile.
     
    In the world of big companies this is how the short sellers can attack you if they see you can’t convert these hard to sell assets into cash to defend a take over effort in the case of financial firms they can put you out of business like what happened during the financial crisis.
     
    Great post Gini but you forget…this is a Woman’s world! Cash is Queen!

  4. Whew, I just exhaled like I was part of it… Wonderful job of describing your situation such an impactful way. You’re so right that cash, WAY MORE than content, is king. Reminds me of a period at my previous employer last year when they implemented sweeping changes to how leads were distributed and who got which ones. After a near coup from the 1800 bankers that got shafted, they switched back to the old system. But during those 3 months, was earning appx 25% of what I had been making. It seemed cruel and unfair, but bottom line, had I has sufficient cash reserves, I’d have been able to manage without falling behind on my bills. Even after they reversed their decision, I decided to leave anyway. I’m proud of you for overcoming the tough times and being the coolest person named Gini that I know!

  5. KenMueller says:

    This is an area where I need to some serious learning. Big time.

  6. adamtoporek says:

    I’m always impressed with how open you are on this topic Gini. The one thing about the “cash is king” lesson is lots of times people don’t get the chance to learn from the mistake without serious consequences. It seems you made it through with much pain and worry, but without devastation. Hopefully, we can all heed the lesson.

    • ginidietrich says:

       @adamtoporek Well, I wouldn’t say no devastation. But we did make it through, which enables me to talk about it and hopefully teach people a thing or two along the way. It’s MUCH easier to learn from someone else’s mistakes.

  7. ginidietrich says:

    @PaulRobertsPAR Thanks Paul!

  8. ginidietrich says:

    @adamtoporek Ha! I’m pretty sure that queen part wasn’t in there

  9. wow – way to lay down the bare facts  – love the honesty…..
     
    I have worked for a sports club that went into administration (Chapter 11 in USA??) – we lived by your “cash is king mantra” for years (knowing that bankruptcy would get us eventually)…. – it’s kinda fun having to juggle weekly/daily (to stay alive) – maybe not fun – but a challenge – and we like them…
     
    especially for entrepenurial businesses – it’s a great skill to have – and  a great base to build from – you really appreciate the power of cash – and make sure your business is set up to generate it….
     
    ps – also been there with you on the self sacrifice on the wages…..  I hope you caught up!!
     
    Less of a problem in my new gig – #fattedcalves!!
     
    Happy monday

    • ginidietrich says:

       @Nic_Cartwright Sometimes I think it would be easier to go work for someone again. And then I come back to reality!

  10. DBMC says:

    @ginidietrich This is a problem for freelancers too. Clients feel they can pay up to 45 days out…

    • ginidietrich says:

      @DBMC I think, unless you’ve had to fight for your paycheck, you don’t get it. Ask if they’d like to be paid every 45 days. They’d say no

      • DBMC says:

        @ginidietrich Absolutely. Since they get a paycheck every 2 weeks regardless they have no idea. Have somewhat of that situation right now.

  11. ginidietrich says:

    @PatrickHayslett Thanks!

  12. JayDolan says:

    Best thing that ever happened to me was when my blog started making me money and I’ve got enough money to run it for 20 years.
     
    Yeah, I plant o be making fun of Facebook in 2032.

  13. JayDolan says:

    Best thing that ever happened to me was when my blog started making me money and I’ve got enough money to run it for 20 years.
     
    Yeah, I plan to be making fun of Facebook in 2032.
     

  14. Erin F. says:

    As someone who’s been face-to-face with this reality, “cash is king” is a lesson that should not be forgotten. Thanks, Gini, for sharing your story.

  15. KDillabough says:

    This is probably THE most important message any business can hear…and heed. I cannot tell you the number of times I’ve worked with a business owner who shows me their “books”, but when I ask, what’s your cash flow? Where are your cash flow projections?, they fix me with a blank stare. Projections, balance sheets, income statements and business plans are cold comfort when the door hits you on the butt on the way out when cash is depleted/non-existent.
     
    It really is just like balancing a cheque book, knowing that if the cash isn’t there, there’s a finite amount of time and window of opportunity to eek through any bad times. And we all go through bad times.
     
    Having a cash buffer in business is no different than having a cash buffer in life: it’s essential. I don’t know if this applies in the States, but I also counsel businesses to set aside the money they will pay in taxes (provincial/federal) when the invoices get paid. I cannot tell you the number of business owners who invoice “x” dollars plus tax, then use up all that money. When tax time rolls around, they haven’t put that tax money aside, and the hole gets deeper, sometimes to the point of no return.
     
    Sometimes the most significant learnings come from the most painful of situations. Glad to hear that all is now “right” in your world. Bravo to you. Cheers! Kaarina

    • ginidietrich says:

       @KDillabough The taxes should be part of your projections…budgeting for them and not spending it just because it’s there. It’s not a fun lesson to learn, but sometimes you have to learn it yourself before you really get it.

  16. TheJackB says:

    I have cut several clients loose for payment issues. One of them was irate because I stopped in the middle of a job and did not provide them with any of the work that I had done.
     
    Good intentions and promises to pay don’t cover your expenses and your creditors don’t care. It might not be nice but it is true. If you don’t have cash you are at risk.

  17. ginidietrich says:

    @AmberCadabra Did the big five year old have a good birthday?

  18. wabbitoid says:

    I have constant cash flow problems.  One great thing about working for small bizzes is that I usually pick up the check in person – which is to say they are *more* likely to pay me on time. 
    Also, the fun thing about working with bars is that I am often paid in cash – and I do mean the green stuff that does not have to be cleared in a bank.  My biggest concern is always checking for counterfeits, sometimes a problem in St Paul.
    The manufactured crisis last August hit me very hard, too, and I’m still angry about it.  Nothing actually came of that nonsense, either, which is even more galling.  One Hell of a way to run a nation.  Actual leaders say things like “The only thing we have to fear is fear itself” but these clowns run around with Halloween masks on yelling, “Run!  Run!  The Bogeyman is coming!”. 

    • ginidietrich says:

       @wabbitoid LOL!! Sorry…I know this is a serious comment (and I thank you) but the image your last sentence just gave me is VERY funny!

      • wabbitoid says:

         @ginidietrich If you can’t take the weirdness going down with a laugh there’s something wrong with you.  We live in times that are a self-parody. Might as well make our own fun with it, right?

      • feliciahudson says:

         @ginidietrich  @wabbitoid I like the idea of picking up the check in person! 🙂 And I agree with Gini, the situation is not funny, but the visual of your last sentence is!

  19. feliciahudson says:

    Gini, thanks so much for sharing your experience. Now I’m even more in awe of you and how you manage everything with such aplomb! I know first-hand what an important lesson this is for small business owners, freelancers and solopreneurs. Actually, it’s a good life lesson, period. Inconsistent cash flow can lead to making bad decisions that don’t align with your goals for your business, i.e. taking on the wrong clients or jobs, etc.. Glad to know you’ve come through it and are back in the black.

  20. ginidietrich says:

    @MichelleKhouri Thanks Michelle!

  21. ladylaff says:

    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 says:

       @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 says:

       @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.

      • ladylaff says:

         @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.

  22. hackmanj says:

    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.

  23. John_Trader1 says:

    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.

    • ginidietrich says:

       @John_Trader1 It’s sometimes a lesson we have to learn on our own before we implement it. I know I’ll never make that mistake again.

  24. blfarris says:

    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 

    • ginidietrich says:

       @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. 

  25. Andrea Hypno says:

    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. 🙂

  26. ryancox says:

    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!

  27. blfarris says:

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

  28. KensViews says:

    And now I know why you insisted on paying for dinner 🙂
     

    • ginidietrich says:

       @KensViews I insisted because the rule is, when you’re a guest in someone’s hometown, they buy dinner.

  29. ExtremelyAvg says:

    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.

    • ginidietrich says:

       @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.

      • ExtremelyAvg says:

         @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.

  30. lonlasher says:

    You say 90 days.  I say 60  months or 180 days.  Without that much cash you probably wouldn’t make it through another bank meltdown like we had in 2008.
    Grandma with her cash in the mattress or in the coffee can did it for a reason, i.e. the depression when cash really was King (and Queen too).

  31. Hi Gini… cash is king?  You bet it is!  I read this book by Dave Ramsey two years ago and it change my life… and my business.
    The Total Money Makeover
    http://www.amazon.com/The-Total-Money-Makeover-Financial/dp/159555078X/ref=sr_1_1?ie=UTF8&qid=1332196383&sr=8-1
     
    He also has a book on starting and running a business… great stuff!
    EntreLeadership
    http://www.amazon.com/EntreLeadership-Practical-Business-Wisdom-Trenches/dp/1451617852/ref=pd_sim_b_5
     
    –Tony Gnau

    • ginidietrich says:

       @T60Productions Nooooo! Don’t add to my book reading list! NOOOOOOO!!!

      • EricaAllison says:

         @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? 🙂
         

  32. JamesBSchultz says:

    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.

  33. ginidietrich says:

    @airport_girl Thanks!

  34. blfarris says:

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

  35. geoffliving says:

    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.

    • ginidietrich says:

       @geoffliving I used to have the same. But then we went through it all and the bank called the line (which I have nearly paid off now) and we really struggled. But we’re back on the upswing now and, I have to admit, it feels pretty darn good!

  36. BestRoofer says:

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

  37. […] you for using the same content in several places on the web (which I just did yesterday when I ran my weekly Crain’s column here – […]

  38. 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

  39. This was a really good blog post. Thanks for sharing your insights on this. 

    • ginidietrich says:

       @Justicewordlaw As you start your business, you’re going to hear this a lot. Please don’t make the same mistakes I made….save your cash!

  40. kamichat says:

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

    • ginidietrich says:

       @kamichat Thanks Kami. You can hear it over and over again, but until you see what it really does, I don’t think you get it.

  41. Tinu says:

    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.

    • ginidietrich says:

       @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!

      • ExtremelyAvg says:

         @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.

  42. ginidietrich says:

    @JMMuscarello Thanks John!

  43. […] flow. You will hear over and over again that cash is king. I cannot stress this enough. If you don’t have cash in your business to cover at least three […]

  44. […] you for using the same content in several places on the web (which I just did yesterday when I ran my weekly Crain’s column here – […]

  45. […] when the other shoe didn’t drop during the down economy, I decided I should take this growing a PR firm thing […]

  46. […] vendors or employees that you are low on cash — but they are going to find out sooner or later. Be honest with people. Go to your employees and let them know that paychecks might be late — you’ve got a cash flow […]

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