Here’s a simple description of why cash flow is the most important financial measurement in business.
Cashflow positive means: More ‘actual’ cash money is coming in than is going out. It does not mean revenue exceeds expenditure.
Hence:
It’s impossible to go broke while your business is cash flow positive.
It’s possible to broke while your business is making a profit.
This is the most important financial fact startups must know and understand.
Here’s a quote for Warren Buffett – who has been consistently among the few richest people in the world for the past 20 years or so.
“To invest successfully over a lifetime does not require a stratospheric IQ, unusual insights, or inside information. What’s needed is sound intellectual framework for making decisions and to keep emotions from eroding that framework.”
Firstly let’s define investing as something which we we see as worth putting a consistent effort into to achieve a long term result.
So it is fair to say we invest in many things such as family, health, finances and business ideas. The key interpretation from the above quote is that it’s not about being an intellectual guru, rather our success will be a function of having a robust framework to work towards. That this information is available to everyone, and if we have to the discipline to stick to it our investments will yield results far beyond our expectation.
I’ll be doing another Startup Blog Live session at 8pm this Thursday night. It will be via www.twitcam.com under my twitter sign up which is www.twitter.com/sammartino or @sammartino for current members.
The topics of discussion will be Tactics vs Strategy – which was the topic of a blog post below and a very important issue for startups and entrepreneurs. If you can make it – ask a question in teh comments and I’ll answer it live for everyones benefit. Last time we had over 70 people tune in. So join us.
Steve.
I know I am being a bit of a dog with a bone here. But we really need to put this ‘Free’ stupidity to rest once and for all. Sure it’s semantics, but this is what the Free model really is:
If we have a so called ‘Free’ model, we are simply providing resources (at out cost) in order to extract revenue through alternative means later, or via a trade sale to incumbents who see value in what we have created. In both cases the ultimate goal is Revenue.
In many ways it’s riskier to go down the free track, simple because time and money are inextricably linked. If we don’t end up ‘Monetizing’ (another word I hate) then we are simply in the wealth transfer business.
Today’s task is boring, even hateful. Doing invoices. As with all great ironies, this ought be a task we revere look forward to and basically enjoy. ‘Payment’.
Given we often forget the important stuff we all know. I sometimes write a reminder and stick it to my office wall.
Here’s my pic: (Art’s never been a strong point)
Yep, I’m reminding myeslf that this somewhat laborious task is actually a cause for celebration, the celebration of hard work as we collect our earnings.
Startups struggling with boring stuff – remind yourself why it’s important!
Steve – founder rentoid.com
Here’s the startup blog view on the $700b bailout plan.
In a free market private profits should also result in provite losses – not public sharing.
If the crisis didn’t happen the US taxpayers would not have shared in the upside – so why should they bail them out? The fact is – the hard economic lessons need to be learned. The USA economy needs the pain of a recession to re-calibrate the market mechanics and the ‘philosophy’ of the market participants. Unless reality hits – more events of this nature will occur.
