Cash is not king, nor are profits. Yet, we’re reminded of this royalty seemingly daily on social media channels and by many management gurus.
No, cash is not king. Instead, cash is a requirement, and so are profits. One is not more important than the other; both go hand in hand. If cash is not king, then what is (or who)?
The True King of Business
When I think of the story of the golden goose that laid the golden eggs, I think of the marshmallow experiment with young children.
The experiment is a test of delayed gratification. Delayed gratification did not save the golden goose’s life; greed killed it.
When giving talks to small business groups, I ask whether they would rather have the golden goose or the golden eggs before retelling this fable. The response is unanimous: the golden goose.
Cash is akin to what the golden goose delivers daily to its owner. In business, we call the golden goose a business model.
Cash is not king, and neither are profits. The business model is king, and we must protect, nourish, and periodically update it. James Carville made the phrase, ‘It’s the economy stupid’ famous for Bill Clinton in 1992. I can hear him saying right now, “It’s the business model, stupid.”
But what exactly is a business model?
The Three Primary Verbs of Any Business
A business model is simply the value a business creates and delivers to a customer willing to depart with resources they value in a fair exchange. In short, it’s a system where value is given and received. That’s the short answer.
When I think of a business model, I think of three verbs:
- finding
- getting
- doing
The third verb above is replaced based on the type of business. For example, a dentist’s three primary verbs are finding a patient, getting a patient, and serving a patient. Finding is all about marketing. Getting is the act of selling. Serving is the act of doing what a dentist does—cleaning and fixing teeth.
I’m in the consulting business. I find clients, get them, and serve them. Again, finding is the process of marketing. Getting is the process of selling. Serving is the process of doing what I’m good at.
If the first definition of a business model seems too academic, think of the three verbs of finding, getting, and doing.
Business models are supposed to generate cash. Some do it faster than others. Others generate cash in large sizes, while others are focused on volume. Some work, some don’t. If cash is an issue, revisit the business model that’s supposed to be your golden goose.
Reasons Cash May Seem Kingly
I understand why so many financially centric writers claim cash is king. I used to believe in this mantra, too.
But something changed when a switch was flipped in my mind. I first met Mike Schrader at Orscheln Industries. He was one of the most cerebral thinkers I ever met when I worked at that family business. Mike was the first person to introduce me to Donella Meadows and systems thinking.
When that happened, cash was dethroned. The business model became king. Business model thinking requires systems thinking, and cash flow thinking can become thinking in parts. Most cash flow issues start upstream. Upstream, we’ll find parts of the whole where cash flow issues originate.
Running out of cash is scary. I get the message of taking cash flow seriously. This website is heavily invested in teaching money management. But that doesn’t mean cash is king. Cash is required to survive and thrive. Remember, the business model is king, the golden goose.
It’s Still More Than Okay To Have a Cash-Centric Mindset
If we return to systems thinking, cash is not relegated to a back shelf or a faraway dark corner.
Not only can we never run out of cash, but we can never ‘about’ run out of cash. Most premium subscribers of G3CFO generate weekly cash flow forecasts, and project capital needs twelve to eighteen months into the future on a rolling monthly basis. Just because cash is not king does not mean we ignore it. We take it seriously.
