The Cash Flow Episode

Business brain episode 432 for Friday, March 17th, St. Patrick's Day 2023. Greetings folks and welcome to Business Brain, the show by, for and about business owners, about entrepreneurs. Those of us that like to use our business brains in all aspects of our live. We collect here once or twice a week. Lately it's been twice. This is great this week, not only are we here on St. Patrick's Day, the last episode was on the ides of March. I don't know what's going on this week. Sponsors for this episode are include Headspace, where you can go to headspace.com brain30 brain30 why? Because you get to try headspace free for 30 days at that link. We'll talk more about that in a minute. Still here in Austin, Texas. I am Dave Hamilton.

Out in Lafayette, California, in the middle of another atmospheric river. I'm Shannon Jean.

Yeah, crazy out here right now. Yeah, you've got a lot going on.

I love they brand the storms now. You know, on the east coast they name the, you know, the hurricanes or whatever it is. We don't have that out here. So now we have to.

Oh, you don't get hurricanes. You don't get tropical storms or hurricanes out there.

Nothing like ah, we have like atmospheric rivers. Another term they came this year is a bomb cyclone which is another branded storm kind of thing. And you know, you love the media so they have to. Yeah, so it's kind of interesting, but.

Yeah, yeah, yeah, interesting.

You know, emergencies and constant crisis that we seem to be in a lot. And I think today is interesting. We're going to talk about cash flow, which could be a crisis or it could be an opportunity.

Right? It could, yeah. We got, we got an email from listener Ro into feedbackusinessbrain show and I will preface this by saying I love emails like this because it's so easy for those of us that have been sort of in the weeds for perhaps too long to take things for granted, definitions of things. But it is good for all of us experts. I don't even want to say we're experts. Experienced people, people have been doing it for too long, people who have just started out. It's good for all of us to take a moment and look at what these things, these terms that we talk about mean. And Robert emailed feedback at BusinessBrain show and asked when I hear businesses, business owners talk about cash flow, I'm not really certain what they mean. I think I have a general idea but could you expand on this also? How does someone increase Their cash flow. This seems to be the number one complaint when with my non paying customers. Robert's got another question. I don't know if we'll get to it today, but we'll get to it another time about what to do about those non paying customers. So I'm happy to start here, Shannon, but I really am looking forward to this as a conversation. Yeah, for me, cash flow is how much cash is actually arriving at my bank accounts each month or week versus how much is leaving each month or week. And it's for this reason that I love the advice that my father in law, who has a great business brain, he gave me early, early on and he says I manage to cash flow first, then I worry about profits. And that has stuck with me. I know I've shared that advice on the show here. I don't know if I've. I've attributed it to Steve or not, but. But he definitely was the first person I encountered who said that. I've encountered many other people who have said that too. And the reason is you can wrangle your profit and loss statement, your P and L to make it look positive. But if you don't have any money in the bank, you are out of business. Right, we talked about that at the end of the last episode. You know, you need your payroll money, you need the cash to move the business forward. And similarly you can be losing money on your profit and loss statement on your P and L. But if you've got enough Runway, AKA cash, and that Runway can come from, from initial investment, cash infusion, loans or more, you can bankroll your business to success sometimes. Yeah, Wikipedia describes cash flow a few ways, but I think the one that applies to what we talk about here is this. It is however popular they say to use cash flow in a, in the sense describing symbolic payments into or out of a business project or financial product. And I like that definition. It is a simple thing because the specifics of cash flow, and I want to talk about some of those, but the specifics of it will mean different things for different businesses. Even, you know, even me running. And I'm sure this is true for you, Shannon, running multiple businesses that are different types of entities. And I don't just mean different types of like LLC versus C Corp. But just a different nature of the business. Cash flow means different things at those, you know, you might have a business without employees. And so your cash flow needs and picture and management of it are very different.

Very different.

Yeah, yeah, yeah.

Like it may be that it's it's okay, I, I know I'm going to get paid, but, or I'm. This money's coming in but the timing of it isn't as critical if versus if you've got, you know, 10 or 20 employees that you're, you're managing to or other bills that are coming up and that cash flow, the money in and out and you should be equally as important is understanding also a cash flow statement is being able to sit down and do that and figure out what your flow is going to be over a time period. And I certainly want to talk more about that.

You know, we talk here a lot on the show about self awareness and learning about ourselves and how that applies to our business brains so that we can have the proper perspective on stuff. And it's so easy to get caught up in doing things that we're not thinking about things. And that's not just true about business, it's true about our lives in general. Taking a minute to chill and focus on and sort of let our thoughts process and go is super helpful. And Headspace, our sponsor here, helps that happen in a fantastic way. Through guided meditations, mindfulness practices, breathing and calming exercises, and so much more, the Headspace tools can help reduce anxiety. They can help boost your mood and help you sleep better. Headspace combines scientifically proven benefits of meditation and mindfulness with modern practices. Through their experienced meditation teachers, Headspace has stuff for no matter what you need. If you want like a quick on the go meditation for a few minutes, like they've got like a three minute meditation. They've also got much longer meditations. Their teachers are all, they're all great. I mean I have, you know, some that I, I kind of gravitate to when I use it. But everyone that I've tried has brought me something. They've got the world's largest library of content with over a thousand hours of clinically proven mental health exercises. Headspace has definitely helped me and more than 100 million people worldwide. And they can help you too. Listen up, you do not want to miss this because we've arranged something special here for a limited time. All of you can try headspace free for 30 days by going to headspace.com brainthread 30 for 30 days. You won't find this offer anywhere else. You must use our link h E-A-S-P-A c e.com brain30 to unlock all of Headspace free for 30 days. This is not something they normally do. Headspace.com brain30 and our thanks to headspace for doing what they do and for sponsoring this episode. All right.

But you know what I love about that ad is as you started it, you then, because headspace is so important, to kind of calm down and be self aware and you slowed down and talked it through and that we should do a whole show on that because we're all about action, action, action and accountability and go, go, go, go, go. Don't, don't wait. Don't wait. But sometimes you just have to chill and take a break and it would be a good episode.

It is good to chill. Yeah, yeah, yeah, yeah, yeah. I think I agree. We have to chill sometimes. It's the way we let our. I always think as the time where my brain, like, gets to percolate in the background and a lot of good thoughts come out of that. So. Yeah, no, it's good for conscious brains.

Yeah, we've talked about it. Like when driving, for instance. Yes, Oftentimes when I'm driving, certain times of the year when I do a lot of driving and I'm going someplace during hunting season, I'm driving up to duck club and I find myself, you know, no other noise, just kind of getting on autopilot, but thinking.

Yeah.

And stuff happens. Really, really good stuff. It's like being in the shower, right? Things.

Yeah. What I like about meditation, especially guided meditation, is that it forces me to not think in those moments. And that's the difference is, you know, actually letting the thoughts sort of go as opposed to letting them process it. It changes things and it's helpful.

Let's do an episode next week on when to slow down or when to let your thinking process. I think that's a great idea, but I do want to talk about things that you do have to take action on. And one of the things, you know, cash flow is really important. I mean, critical. It's the lifeblood of your business. If you don't manage it well, you just see it over and over and over when even huge companies where they're like, wow, we need to go out and raise another, you know, x hundreds of millions of dollars or billions of dollars because their cash flow is in trouble.

Yeah.

And. And two things about that, before I jump into the cash flow statement, is that if you're constantly having problems, it's a huge indicator that there's systemic issues with your business, problems with cash. It could be that, you know, you've let your expenses get out of hand. You know, I always used to joke that for my managers, the number one solution to a Manager was to hire someone else. Right. We can't get this done in time. We can't do this, we can't handle this. These are problems. Da, da da da. Let's hire somebody else. And when you hear in the news like, you know, Facebook just laying off another 10,000 people this week after, you know, 10,000 last month or something, that happens everywhere. And so you need to look. And it's not just people, although those people are very, very expensive. It could be your, you've expanded your facility too quick. You bought this stuff, you committed to doing something. I've been there with all of this stuff. So the cash flow is like the first indicator you need to look at. Is it, is it a short term issue or is it something systemic in my business that I need to change? Did I have a whole product line, you know, fall off and is not selling anymore? And we need to modify that. If you're in the product business or if you're in a service business, it's like, wow, one of our most profitable services is no longer being booked by people. Why is, is, is it just not needed anymore? Did somebody else come in and undercut you? But that, that's the, the top level indicator. And your cash flow statements, you know, when things are good, you can cash flow 30 days, 60 days. Yeah, we sit down and we talk about it. Things are going great and we're projecting out. But you know, there's been times in businesses that I've owned that, I mean, we would, I would meet weekly and do cash flow state, you know, hey, what's coming in this week? Even daily. Okay, who are we going to do this? And you have to start thinking why and why can you. And also managing to who's the most important person to pay? Right. You got to pay your employees first before you, before everybody. You know, you got to keep the lights on. You know, you can get a lot of leeway with the power company. You got to pay, you know, insurance, but, you know, you got to pay who matters first, the most important things. And again, I'll talk, I talked about it in the banking episode earlier this week, is communication. If, especially if it's a macro issue like right now where the economy's, you know, kind of pretty bumpy and you're having problems, you got to call and talk to your suppliers. If you can't pay them or if you have to short pay them or.

Pay them late, that is, that is one of the best pieces I want, I just want to stop and shine a light on that that is one of the best pieces of advice that we have shared in our eight years of doing the show. Happy anniversary, by the way. We had last month. We. It like, if you are having trouble paying someone, call them. And if you need more assurance that that is the right thing, flip it the other way. We're going to do the collections show. But yes, if. If you are owed money by someone, wouldn't you rather hear from them and have a conversation with them about how to deal with that? That's that. So. So call them. I know it's. It's not a. A conversation. It's a conversation that involves. It sucks. Yeah, it sucks. But if that's the scenario, that's the scenario. So just call them and tell them. Yeah, yeah.

And. And I. And calling is really the way to do it, if you can. Email is not good.

No.

You know, it's too flat. Texting, of course. No, you know, get on the phone and explain it. Especially if it's, again, this macroeconomic thing, which. That you're not alone. You're not the only one that's having these issues, especially, you know, right now. Now, even if you made a big mistake and something happened, or maybe you need to massage the. You know, I've talked. I've used this phrase before on the show, you know, managing the truth.

Right.

Maybe you have to massage what's really going on and say, you know, wow, one of our best customers is having trouble and couldn't pay us. You know, that doesn't hurt anybody. And it maybe allows you to save face a little bit more. If the reason why you're not calling is because you feel like I made a mistake and I don't have any money.

Yeah.

And so you got to talk to them. Partners, suppliers, you know, these people, they, they. You want them on your side. Just like when we've talked about negotiating. You want them on your side of the table. They're your. They're with you on this.

Yeah.

And maybe you can't. You know, if you owe them $10,000, you say, look, I can only send you 3,000 or whatever and work. Even the rent. I mean, in 2008, 2009, with our business, you know, one of our companies, the phones just stopped ringing. It was like somebody pulled the phone.

Out of the wall.

They just were done. And I couldn't. I was like, I don't understand. Everything just went in the toilet. And, you know, we couldn't even pay the rent because we had to pay our employees first. You have to keep these people and we did some layoffs and we reduced some hours trying to lessen the pain. Sure, we, we of course were not getting paid. But even the landlord, when you called and I had never spoken to these people ever, you know, I used an agent and this kind of thing, but when I called them, they were just like, well, you know, you're not the only one having this problem. What can we do to make it work? And we, we agreed on a, on a payment schedule that we could meet. So instead of paying. Yeah, I don't know what the total was. Instead of paying ten grand a month, I'm just like, hey, we're going to pay two grand a month for the next six months, but then after that we're going to pay you 12 grand to make up or something to catch it up. Yeah, yeah. And those people will, will be your partners. If you communicate with them. If you don't and they have to call you, they're not as friendly.

It's not as good. No. Be proactive. Yeah, yeah, yeah.

So that's the number one thing. And that, that cash flow statement is, can help you here because if you sit down and you look and all of a sudden you start to see like, wow. And I like to base it on my historical stuff. You're like, well, how, how did it match my projected statement of cash flows? And if it didn't, why? It was a close. Okay, great. Okay, yeah, it's fine. But if it was off by a significant amount, what's going on? And are my customers paying me late? You know, is, is what, what's, what's happening. So planning is critically important to manage your cash. You know, having some reserves and not touching it and keeping it emergency, setting up that line of credit like we talked about last week on the Banking Show. I could talk about this stuff for a long time because I've been there when you're stuck, it's miserable and you have to just keep moving and figuring out things to get you through it. And it could be anything. I mean, I can tell you one of my companies was saved by a high valued credit card that I didn't have to pay off for 60 days with no interest. And I'm always super loyal to American Express because, you know, when you get to a certain level and they give you unlimited credit line on a credit card, you know, I could go spend 250 grand and on supplies I needed and then save that cash to pay for things for the next 30 days, make payroll and then, and then pay them back. And if you needed more, you could make a phone call. But all those things were set up when. When we were killing it. And business was great and they are hungry for your business. So you have to plan in advance and build your army because the time is going to come when you're going to need it and you're going to have to fight. So I really implore you to set that up in advance.

I like it, folks. Thanks for hanging out with us, folks. Make sure Robert got entered into our contest for a MacBook Air this year because we featured his question here on the show today. You can send your questions into feedback at Businessbrain Show. We would love to hear from you, even if it's just a comment, a compliment, a criticism, if we share it on the show, you're included into that drawing and we definitely want to hear from you. This stuff is important to us because it makes us make the show you want to hear, which keeps you living that charmed life. We'll see you next week.