Are you cash flow positive?

The origin of “cash is king” isn’t clear. According to Wikipedia, it became a popular phrase after the global stock market crash in 1987, but I think we all knew that cash was king long before 1987.

When the daily receipts from my first business venture, a restaurant (ugh) in 1969 were $2.95 (one order of pancakes, bacon, juice and coffee) and the daily costs to open were $25, I knew cash was king. Even back in the early 1950s, when I heard the ice cream truck bell, ran into the kitchen and the dime under the coffee cup wasn’t there until payday, I certainly understood cash was king.

Always a focus

In the world of an entrepreneur, it’s all about cash flow. A healthy income statement pales in comparison to the value of a healthy balance sheet and strong cash flow.

When I work with startup CEOs, I always focus on the cash forecast. Just ask Cindy, one of my startup CEOs — she’ll tell you what is important to her and her growing business, and what I stress.
When we review an investment opportunity at the Pittsburgh Life Sciences Greenhouse or Accelerator Fund, funding and sources of cash are key, and the No. 1 question we have is “When will you be cash flow positive?”

And John, CEO at my new Manzetti Group startup in the very competitive travel industry space, is totally focused on funding to get his concept to market, followed immediately by his plan to run a tight ship and become cash self-sufficient from the get-go.

At each of my companies, even back in the Babcock & Wilcox days, as chief financial officer and then as CEO, executive chairman and managing director of my own startup, cash management has been my focus. I mentioned a strong balance sheet before. All those great ratios that financial managers have are cool, but if you can’t collect receivables and get liquid, “forget-about-it.” You will fail.

In my current venture into the consulting world with Manzetti Group, the clients who are struggling aren’t focused on cash flow. A State College client in the medical space turned his attention to cash management, immediately after funding to fuel growth, and is doing what it takes to improve operating cash flow (spending, collections, payment terms, etc.) The company is doing well. It’s growing, cash flow positive and the CEO, Fred, is on top of things.

Be prepared

I have always created cash flow models to help manage difficult situations before they come up. I do “what-if” analyses on each product line and business segment, changing assumptions to be ready to react to downturns in the business. And trust me, those downturns will come.

Reaching for my “what-if” model is my go-to strategy and I would encourage any business leader to do something similar. It pays to be prepared — as the definition of luck, good or bad, is the intersection of preparedness and opportunity.

 

John W. Manzetti is the managing director of Manzetti Group LLC. John formed Manzetti Group in 2017 to provide guidance to early-stage and growth companies across multiple industries. He co-founded JTM LLC, a company in the travel industry which is entering the market in April 2018 with a patented product. John is also the executive chairman of Pittsburgh Life Sciences Greenhouse, and founder and managing director of Accelerator Fund LLC, an early-stage, for-profit venture capital fund focused on life sciences and health care.