In order to stay in business, it’s important to have the fundamentals right. Managing the cash flow of your business is a very basic fundamental. Cash is literally the life blood of the business. If a business isn’t adequately capitalized, it won’t survive.
Many businesses are founded “on a shoestring.” They grow by reinvesting the earnings of the business. If the owners withdraw the earnings to support a lavish lifestyle, they’ve put the cart before the horse.
Most businesses experience cycles of good and bad times, growth and retraction. Without accumulating a “war chest,� the business will be unable to survive downturns. Further, without reinvesting earnings, the company will be unable to exploit opportunities of good times by financing expansion.
Many founders of now-prominent companies lived modestly, even after their companies became successful. Some examples are Sam Walton, David Packard and Bill Hewlett. These people habitually avoided extravagance because they focused on building something significant. The financial systems of their companies are exemplary. They recognized that managing the finances of their organizations was fundamental for survival and growth.
It’s good to enjoy the fruits of your labors — after the harvest. Remember not to consume the seeds for next year’s crop.