Written By: Alex Glassey, President, AlexGlassey.com
I regularly teach university courses to fledgling entrepreneurs and I always ask for feedback at the end. The last time I did, I got one comment, “You say the word ‘cash’ too much.”
Hmmm… Let me think about that.
If you’re starting a business I know you’re enthusiastic and passionate about your idea. If you’re like me, you’re excited about working furiously to overcome great challenges. After all, entrepreneurship is the modern-day holy-grail-and-dragon story. And you’re surrounded by people who encourage your enthusiasm and initiative. They want you to slay the dragon and come home with a chest full of gold.
But the cold, hard, sobering reality is that three quarters of entrepreneurs ride into battle without understanding the rules of the game. They don’t have the skills and equipment needed to win, so the vast majority of new ventures fail.
Listen, I’m as enthusiastic about entrepreneurial ventures as anybody I know. But while I’m cheering you on, I’m also reminding you that dragons have sharp teeth, fiery breath and thick scales which they use to kill you. So I’m going to talk about your sword – often – and I’m going to teach you how to use it. And learning about your sword starts with – you guessed it – cash.
Boiled to its essence, a business is simple: it takes time and resources and turns them into cash. If it gets enough cash, it lives. If it runs out, it dies. Just like oxygen and you.
You’re the boss, so your primary job is keeping your business alive by making sure that it always has enough cash. How do you do this? By prioritizing everything related to your business in terms of how much it affects cash. A lot? Top of your list. Doesn’t affect it at all? Ignore it.
Let me say it again in a different way. Because running out of cash means death, your business only cares about things that affect its cash. It follows, then, that every business activity must affect cash in some way. If you’re working on something that doesn’t affect cash then you’re wasting your time. If you’re NOT working on something that DOES affect cash, then you’re missing something important.
Product design? How does it affect cash?
Marketing? How does it affect cash?
Buying a new computer? How does it affect cash?
Hiring somebody? How does it affect cash?
Adjusting the price? Spending on AdWords? Creating a tweet? Your return policy? Payment terms?
Your sword, the one that 74% of business owners don’t know enough about, is financial literacy. You must learn the three financial statements to fully understand cash. You must know them to keep your business alive.
Do I say ‘cash’ too much? Maybe. But I’m going to keep saying it until every entrepreneur I know rides into battle fully prepared to succeed.