February 7, 2022
We live in a world where cash is the king. In business, it’s especially true. If you want to grow your business, you need it. There really are no substitutions, at least not long term ones. Your company can have all the revenue in the world, but if you’re not generating cash, it can easily fail. When times are hard, or during periods of economic uncertainty, having cash reserves for your business is essential. Cash gives you options and flexibility you wouldn’t otherwise have. If you’re looking to grow your business, you need to have access to cash. Here’s why:
You can’t develop new technology, attract top talent, or add new equipment without a positive cash flow. It is an unequivocal truth that the ability to generate cash and invest it back into your business is crucial to accelerating growth. The survival of your business depends on positive cash flow. It’s the single most important financial factor in growing steadily long term.
There are many companies who are able to endure negative cash flows for a short period of time. This is especially true for new companies that are growing rapidly. But eventually, you have to start creating positive cash flow or you won’t be around for very long. As passion-filled businesses, we may not always focus on cash, but the reality is that all companies need it to keep business running.
We often hear the argument that investments are most important. While investments help you to grow your business, it’s not the same as having cash available. If you aren’t convinced that cash is king, think about this: You can’t hire someone without cash. You can’t buy products or create new technologies without cash. You can’t market or sell or purchase without cash. You really can’t do much of anything without it. And if you have no employees, no products, and nothing to sell, you can’t do whatever it is you’re trying to do. If you can’t do what you’re trying to do, then you have no business. It’s as simple as that.
You can give your people incentives to do a good job other than giving them cash, such as offering them remote work, which is a massive perk. Other ways to entice your employees to do a good job include simply being kind to them, spending time with them, and showing them empathy, sympathy, and understanding. These are excellent ways to pull the potential out of them. However, although these are great ways to stimulate your employees, they aren’t enough. Your employees will always need cash or they won’t be around very long.
Here’s another reason why cash is king and you need it to grow your business: When a good investment opportunity comes along, and you don’t have the cash to invest in it, you’re out of luck. The client isn’t going to wait around until you can scrape up the cash. Every opportunity lost is a lost opportunity to expand and grow your business. At Ladder, we are trying to fortify our company and grab as many opportunities as we can. Thanks to positive cash flow, it becomes our choice whether or not we want to invest in an opportunity instead of not having the ability to.
Not having cash also translates negatively for your clients. If you don’t have the cash, you probably won’t have the resources you need to meet their goals. This makes for an unhappy client and probably one that won’t stay with you very long. When you have the cash to pour into your client’s needs, you have options. You are able to pay for and utilize the resources you need. Your clients will be satisfied with you and they will likely remain your client for a long time.
At Ladder, we are an adaptive company. For example, if one client has Facebook and Google departments, and the Facebook department isn’t working, we can have them reduce their budget on Facebook and allocate more to Google. This means adding the relevant people to Google and doing it quickly so as to not miss a revenue opportunity. What helps us is that we hire in advance and have enough capacity for all the departments. This allows us to move resources around very fast for our clients and give them the highest quality possible. One reason we’re passionate about this is because we don’t want our employees getting burned out. We have a model where they work 120 billable hours of the 170 contractual hours. That means they get 50 hours for whatever else they need. This could be their sick days, their holidays, or whatever else they need. We don’t want to overload our people, and this would be impossible to do without a positive cash flow.
A final, but very important reason why cash is king and you need it to grow your business is that cash gives you the means to keep your people happy. At Ladder, we provide a lot of benefits for our people, cash-related and non-cash-related. We offer share options, give out spot bonuses, and other incentives. We provide about 15% of our equity to our people because they are partners and not just employees. Our investors take a hit because of this, but they know that they will make back much more than 15% in the end. We wouldn’t offer that to our people if it wasn’t a winning strategy for our investors as well. Our equity and share options give us the opportunity to create cash flow that is beneficial for our people, our shareholders, the company, and the investors. The happier our people are, the better they will perform, and the happier our clients will be. None of it would be possible if we didn’t have the cash.
Many businesses don't understand the difference between the income statement and cash. If they have a really good top line, they might not care too much about what they're producing on the bottom line. Some don’t bother to learn what their receivable days are or how fast their cash turnover is. This can lead to major troubles, yet many people don’t understand why. It’s a common problem that we see. Businesses tend to think that if they are growing, their cash is also growing, but that isn’t necessarily the case.
You need to understand your cash flow and where it’s coming from. First, you need to make sure you are receiving the cash for what you're selling. Next, you have to create payment cycles to create positive cash flow. This is especially true if you pay everything at once because otherwise, it can cause a large negative spike in your cash flow. If you aren’t receiving cash on a regular cycle, you won’t have the cash you need to hire new people, pay the ones you have, grow your business, pay your suppliers, develop that new tool, or purchase the materials you need.
You have to be careful with how you allocate your cash and make sure you are allocating your cash reserves effectively. You can’t only rely on your income statement to tell you how your business is doing. Contrary to what many people think, your income statement isn’t your cash.
We know that cash isn’t everything, but it is a lot. Without it, doing business becomes a lot harder, especially when using growth marketing. Without cash, marketing becomes near impossible. If you’re experiencing problems with cash, it’s time to do a serious audit of your business and figure out how you can improve the positive flow. Because in terms of growth, cash is truly king.
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