Have you thought recently about how much money you have riding on the success of your business? Or exactly how you will ultimately measure the financial success of your business?
Chances are that between the money you have put into your business, the money you have borrowed and the obligations you have personally guaranteed you have a big financial investment in your business.
(Here is a post about a quick way to evaluate your personal guarantees.)
Given the size of that investment, I encourage you to think for a minute about how you will ultimately measure the financial success of your business.
The book Seeking Wisdom: From Darwin to Munger has some insightful quotes and perspective about the financial purpose of an investment in a business. Many of the quotes are from Warren Buffet and his longtime business partner Charlie Munger.
Here are a few quotes from the book on the purpose of an investment in a business.
“The reason we invest in an economic asset like a business, apartment building, farm, or bond is to make money. But what does that mean? [The answer is] How much cash do I get and when do I get it”
“… a financial asset [a business] has to give you back a lot more cash one day in order to justify your laying out cash for it now.”
No matter whether a company makes telecom equipment, cars, or candy, it’s still the same question: How much cash do we get and when?
The short way to sum out their advice is: It’s all about the cash.
Two Ways Your Business Can Generate Cash For You
Ultimately, your success in business will be determined by the degree to which you generate, and hang on to, cash. This isn’t to say there aren’t other reasons you are in business (pride of ownership, not having a boss breathing down your neck, etc.), it’s just setting out the reality that financial and investment success is all about generating cash.
When you look at your business from the 20,000 foot level, there are only two ways it can ultimately generate cash for you as the owner. I’ll talk about each of those in my next post.
And I will show you the interesting link between improving your cash flow and the three steps involved in managing your cash flow.