After 24 years of raising children, my wife and I will become empty nesters soon. When I see a young couple with children, I think, “How the heck did we raise three kids into responsible adults?” That feeling reminds me of what starting a business can be like: It’s expensive.
Starting a business comes with a hefty price tag. You have to buy equipment, lease an office and hire staff. When fighting for survival, you aren’t reviewing financial statements. You know only what’s in your checkbook.
Your vision for the company started long-term, but in the trenches, all you can consider is how to make it through the day, the week, the month.
When I returned to the family fuel business, the twentieth of every month was stressful because motor fuel taxes were due from sales the month before. I’d head to the post office hoping there was a pile of checks. I wasn’t thinking big-picture; I was trying to manage my checkbook. Going the extra mile to make the next milestone was almost like a badge of honor.
Shifting Your Focus to Cash Flow
Hopefully, you can get your head above water and have some predictability month after month, like when your kids grow up and don’t require constant supervision. You can take the time to prioritize your finances and see how healthy the business is.
Now is the time to switch your focus from the checkbook to key performance indicators—accounts receivable days, accounts payable days and inventory days—that will help you manage cash flow.
The turning point for me was when my company got a line of credit on a borrowing base certificate. Getting a line of credit to support receivables was going to release monetary stress. But our value and ability to succeed were going to be judged by others.
It’s at this point that you need to understand how to generate