Is cash king?

You’ve probably heard the phrase, “turnover is vanity, profit is sanity, and cash is king”.

But, is it?

I don’t think so. Well, there’s truth to it, but only to a degree.

Revenue is vanity. I couldn’t agree more with that statement. My business could do £1m in revenue and have £1.2m in costs. That is a loss-making business, not a million-pound business.

Cash is a little bit like a 4-year-old. It’s only king if you allow it to be king. If you say, “time’s up now”, the power is over.

You can’t escape the fact that money is what turns the world. A business will fail if it does not have cash, but as a business owner, why would you not plan for that?

The creative market is so unpredictable. When it isn’t, you’ve probably got a client paying you late instead. Not planning for surprises will lead to an extremely stressful time, firstly, but potentially to business failure, too.

Build a cash buffer. I always recommend 3-6 months of costs, including what you need, plus your liabilities (money you owe, such as HMRC).

Cash will not be king if you maintain this. Having something to fall back on allows you to shift your attention from cash decisions to profit decisions. For example:

• A job has come in whilst you’re quiet or don’t have much cash, but you’re not sure if it aligns with your values, how you work, or you don’t think it will be as profitable as other work you do? You are in the position to say thanks, but no thanks.
• An invoice hasn’t come in time? You’re not panicking about how to pay your mortgage or the freelancer who supported you.
• A piece of software you’re using isn’t improving, and better tools are coming to market? You can start to trial the new tools, whilst continuing to pay for your existing tools, so you don’t jump and realise the new software isn’t suitable for your business.
• Your team isn’t performing how you want? You’ve got cash to make immediate decisions to rectify that and make the necessary change.
• You want to scale, but your next hire is going to hit your profit levels significantly? You’ve got cash to ride that short-term dip in profits.

These are not examples; these are my first-hand experiences of my own business. I may be an accountant and understand numbers, but this is also my first time running a business. I’ve made business mistakes and I’ll continue to along the way. Building The3Key isn’t about becoming absolutely wadded for me; it’s about having a positive impact on people by educating them a little more than they already know about finances, taxes, and accounting. If I didn’t have cash to fall back on, I could have been guilty of not addressing problems as they arose, which would have negatively impacted others in the process.

Building a cash buffer is a one-time action that will change the direction of your business from being controlled by cash to it being a tool that allows you to take risks and make decisions that were previously out of reach. These risks and decisions are what elevate your business to that next phase.