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.THE SECOND ERROR:OVEROPTIMISM CONCERNING CASH FLOWAny trained accountant or auditor reading this book has just nodded theirhead.The last four words of the subheading above are the source of the vastmajority of business failures.But why should they concern somebody who isdetermined to get rich? Isn't cash flow a bean-counter topic? The concern ofaccountants?The answer is that not only does lack of cash.How eventually doom anyenterprise, it just as surely prises control of any entity from its owner ormajority shareholder.And it is control and ownership of a business entitywhich brings with it the promise of future wealth.Lose control of a business by running out of cash and you are relegated tothe status of minority investor or salaried employee.Once you lose controlofa business, then no bank, white knight, investor or new owner is likely topermityou to gain control again, if for no other reason than that of your original sin,your overoptimism concerning the venture's cash flow in the first place.All new ventures (and established ones, too, come to that) require posi-tive cash flow if they are to grow and to succeed.This is an elementarypoint,which would scarcely need reiterating if it were not for the number of timesI have seen a promising venture snatched away from its founder when cashSow faltered.Cash is a serious matter.Its management is utterly vital in any enterprise.If, like me, you have no head for figures whatever, then this is no cause forconcern.You simply employ somebody who does and listen to them care-fully.Lord knows, there are enough qualified bean-counters in the world andforecasting cash flow is hardly rocket science.It was only when a venture I was involved in became a publicly listedcompany that I bothered to ask a senior accountant to explain to me what abalance sheet really was.He was astonished.How could I have become amulti-millionaire many times over without truly understanding a balance sheet?In point of fact, he did not believe it possible at first.I explained to himthat I had always left all that stuff to my finance directors and accountants -I was too busy making (and spending!) money, and had always begrudgedthe time it might take to grasp the finer points of formally recording itsmovement or current resting place.Today, I have at least a rudimentary understanding of depreciation andsuchlike on a balance sheet.But as far as cash flow is concerned, I have littleto learn from any qualified accountant.Cash flow is something that anyentrepreneur must fully comprehend from the get-go.Balance sheets are amatter for accountants, banks and auditors.But cash flow is the heartbeat ofyour company.If cash flow is good, then no matter how badly run or poorly manageda company is, there is always a decent chance of turning its fortunes around.At the very least, there is time enough to be able to do so.But if a busi-ness's cash flow is weak or failing, then the chances are that it must shutdown or be sold in the not-too-distant future and its assets disposed of tosatisfy creditors.Why is it that cash flow is so often the cause of business failure? Mostoften, either the business is not a viable one, or it has expanded beyond itscapacity to support its rate of expansion.Undercapitalisation is a frequent culprit.So is the 'ostrich syndrome',where inexperienced managers or owners focus only on new businesscomingin the door while neglecting to attend to mundane tasks like meetingpayroll,rent and tax demands.Or, and this is far worse, and more common, theyhave refused to listen to whoever is in charge of cash flow.Perhapscustomersare refusing to pay? Perhaps bad debt has crept up to unacceptable levels?Perhaps there are no customers left except for the new ones?Like Dickens's Mr Micawber, instead of doing something to stem thetide, such owners are always certain that 'something will turn up'.So it does,often in the form of a writ for bankruptcy or a bailiff's court order.In the early days of my first UK company, desperately undercapitalisedand without the funds to grow as quickly as I wished, I realised to my horrorthat I would run out of cash in a few weeks unless I acted [ Pobierz całość w formacie PDF ]