Profits are an illusion created by accountants.
You can’t grow your way out of a flawed business model.
Cash is King, Queen, Master of the Universe, and Emperor for Life.
These are mantras I’ve been telling entrepreneurs for years. Nothing matters more to the life of a business than its cashflow, which is why a good cash forecast is so important to a growing venture. Derek Baker at Cashboard offers his five reasons cash forecasts are inaccurate. Great post, via CJ Cornell’s newsletter.
I’ve heard Dr. Cornwall say “Cash is King, Queen, Master of the Universe, and Emperor for Life” and “(y)ou can’t grow your way out of a flawed business model.” I’m not sure the answer is admitting one’s shortfalls and, therefore, becoming reliant on AI-driven software which, by the way, includes algorithms that must be trained over time.
Each of the five reasons provided points to user error or competence. Tools are certainly helpful, but knowledge and checks and balances are too.
The most poignant part of the post for me was “you should be creating multiple forecast scenarios with different assumptions reflecting varying levels of optimism about the future.” COVID-19 showed us that. In fact, most businesses probably never factored something like that into cash planning.
As for Software as a Service (SaaS), it does include an annuity stream although not without risk or an end-date that requires renewal. I’ve also heard Dr. Cornwall say that the cash plan is tied to a good sales plan and the ability to achieve that plan.
This article talked about having unrealistic expectations. I found this really interesting to read about because as someone who does not know a whole lot about customer segments in multiple industries, it is important to do research about the market in order to make good predictions.
Dr.Cornwall, I’ve also been told this majority of my life due to one of my parents owning their own business. Cashflow is the number one thing when it comes to helping a businesses success and staying open for further success. I think all in all you have to go through the trials and errors to show your true success. Through many tools, the knowledge and the checks plus balances that come with the past and future of things within your business. I plan to use this article to my advantage in the days to come upon graduation and during my job hunt.
As an accounting major, I love the quote, “Cash is King, Queen, Master of the Universe, and Emperor for Life,” because it holds so much truth. Through my accounting courses at Belmont, I have learned that there are two methods of accounting. One is financial accounting, which uses estimates and forecasts, and the other only records transfers and purchases once cash is given / received. The second method has always made more sense to me, as a business truly does not see that cash inflow until it is actually transferred into the account and/or the service is given. It is not always at the agreement to purchase or buy. This is so, so important for entrepreneurs to understand, and through my career I hope to advise local entrepreneurs and businesses to do exactly that.
This article is interesting because it highlights a few concepts appear to be based purely upon human error such as errors in forecasting, choosing the wrong business model or not accounting for increased costs with growth.
These are words that have been told to me time and time again by my dad, who is business owner. A flawed business model will only cause more and more issues especially with cash flow. Cashflow is what keeps a business going. With a flawless business model, it will become easier to predict a good cash forecast.