We want to share this great post we found on unreasonable.is about the importance of understanding your cash flow. The author of this post, Pascal Finette, is the Director of Mozilla’s Open Innovation Group, and consults entrepreneurs on their strategy and operations.
“Cash-flow is simple: Money in minus money out. If your cash-flow is positive your business lives, if your cash-flow is negative your business dies. Simple as that.
Yet I am befuddled by the lack of understanding of this essential fact of business. I literally haven’t had a single discussion about the actions which lead a particular business to get to positive cash-flow, or even the notion of cash-flow, with any of the many start-ups I’ve met over the course of the last couple of years. It seems that Silicon Valley’s obsession with growth and the vague notion of “we’ll figure out the business model later” led to a culture of people building companies with the single goal of selling them. And as Silicon Valley culture spreads throughout the world these days, founders all around the globe follow suit.
I cannot stress enough how important it is to get to positive cash-flow as soon as possible. Unless you’re the next Facebook/AirBnB/Name-your-preferred-hot-startup and swim in heaps of venture capital (which to be honest you most likely won’t be – the cards are clearly stacked against you… just look at the stats), having positive cash-flow means you are master of your own destiny. Cash-flow puts you into the driver seat. It allows you to do the things you want to do. And even if you want to raise money to accelerate your growth it puts you into a position of power, not one where you need to beg for money.
So – unless you want to build your business as an acquisition target (nothing wrong with that – just know that the odds are heavily stacked against you), read up on cash-flow, understand the principles by heart, and make it one of your key objectives!
Go do your homework and figure out what your current cash-flow situation looks like and how you can get to a cash-flow positive state. The life of your company depends on it. So, don’t put it off.
P.S. Here’s some recommended reading for you – Don’t Build A Company To Sell, Build It To Last by Kanyi Maqubela and anything you can find by Norm Brodsky (a columnist at Inc Magazine), e.g. this piece on cash-flow.”