I started in public accounting in 1982. I am now at the point where I can say things like, “back in the day” and “I’ve been at this a long time”. I like this stage of my career, where I can occupy the seat of the wise old sage. However, I must admit that it is hard for me to keep up with the rapid changes in technology and I cannot work as fast as I used to. Over the years, experience has been my primary teacher. We never graduate from the classroom of experience, nor should we want to. We become better people when we learn from experience. These experiences include not only our own but also those of others. I have learned from both, particularly in the context of my career. In this series of blogs, I will share some of the lessons that I have learned owning my own business and serving my clients.

   It should come as no surprise that the first lesson I have learned is – Cash Is King. I learned this lesson as I was growing up. Money, my Dad would say, “…burned a hole in my pocket”. I was a spender and would always be short of money and I relied on borrowing from my frugal younger brother. I always paid him back when I got paid, which put me in a hole on pay day. Fortunately, I finally realized how much less stressful it is when all the money is not spoken for on pay day. Unfortunately, I have witnessed over and over how many people never learn this lesson and live under the stress of always being short of cash.

   Successful business owners understand that when King Cash is on the throne, there will be freedom and peace in the kingdom. Freedom from the burden of unpaid bills. Freedom from the worry of an economic downturn. Freedom to take advantage of opportunities that invariably come along. Freedom cannot exist when business owners live under the stress of being cash poor.

   Admittedly, some businesses are not profitable. With expenses consistently exceeding revenue, a day of reckoning will eventually force the business to cease operations. In 2011, I started a business providing continuing education to CPAs. I closed the business at the end of 2012. The business was never going to be profitable, so I took my lumps and shut down the business. It is foolish to keep an unprofitable business going when the business will never make it.

   Learning how to manage King Cash is skill that all business owners need to learn. I like to advise my clients that cash must be segregated into pockets and those pockets cannot have holes. Typically, the pockets are operating cash, cash reserved for paying taxes, paying debt, and making equipment purchases. My successful clients do not rob their business of cash and they set reasonable pay for themselves. This is the pay they receive for what they do. The pay they receive for what they own (the business) is determined after cash has been allocated to working capital, taxes, debt reduction and equipment replacement that will not be financed. They get paid last in order the keep King Cash on the throne, which, as I have witnessed, has never failed them. Over a short series of blogs, I will discuss how to manage cash within each of these pockets, and why having each pocket adequately filled is so important. 

-Butch Rogers, CPA