The King and The Golden Goose

cash is king

7th August 2017

Gavin Preston

Business Growth

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There are phrases in life we know so well that they trot off the end of our tongue automatically:

It never rains it….

Pigs don’t ….

An apple a day keeps…

I don’t even need to finish the sentence because you know the next words without even thinking.  They trot off our tongue so automatically that we never question them.

The same is true for sayings in business:

Cash is King.

Turnover is Vanity, Profit is Sanity.

When we trot phrases off automatically, we tend to treat them as a statement of fact without a further thought. Thinking stops there.

Where am I going with this?

Many small business owners monitor the financial health by the amount of cash in the bank.  Thinking stops there.  When ‘cash in bank’ runs low it triggers a spurt of action to make more sales or bring in monies owed. Other aspects of the financial health are not examined due to the busyness of day to day operations.

Some businesses progress to forecasting and managing cash flow.  After all cash is king!

Others progress one step further and manage their P&L. They actively monitor product pricing, margins and cost base following the maxim ‘look after the pennies and the pounds will look after themselves’.  Sometimes the driver of this profit focus is to maximise the amount of money the owner can take out of the business. Thinking stops there.  Arguably, there is nothing wrong with this.  In fact, there is a lot to be said for a lifestyle business.

Some want more than consistency of short to medium term income streams.  They want to build a business they can sell or one that will afford a management team which can run it for them to provide a certain strong income stream. Maybe they want to scale a business so that it can leave a legacy.  Such business owners, whilst they acknowledge cash is king and profit is indeed sanity, are focused on balance sheet thinking rather than P&L thinking.

The phrase running around in their heads is ‘Build the Balance Sheet’ or ‘Income follows Assets’. The thinking here is to watch the pounds so that the pounds can be invested back in the business for future growth, specifically invested into assets that can yield returns year after year.  The Business Dictionary defines an asset as ‘something valuable that an entity owns, benefits from, or has use of, in generating income”. Income follows assets.

Retaining profits builds cash balances or enables investment in income generating assets or R&D (don’t forget the attractive R&D tax credits) or paying down debt.  A stronger balance sheet will reduce your credit rating and in so doing open doors to new opportunities, enable you to be seriously considered for contracts/work that you wouldn’t otherwise have been considered for and provide security to finance the next phase of growth.

Investing in your people and culture to create an environment of performance will yield a strong return over time.

For some, maybe it is time to move from Cash is King to thinking about Income follows Assets.

The golden goose could trump the King (of cash).  A flock of golden geese will ensure that the king has a long and lucrative reign.

To stimulate the thinking of the future leaders of your business.  I have two stalwart DVD training products “The Business Accelerator” and “The Strategy Compass” which combined provide about 8 hours of first class content to equip the rising stars of your organisation to grow your business.  They normally sell for £97 and £197 + VAT respectively but I am running a summer offer until 1st September.  Both for just £97 + VAT.

Click this link to find out more about how these two programmes can help the people in your business deliver an even better return for you.

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