Issue #1

Why Cash is King

“Cash is king.” Perhaps you have heard that before. It’s a popular saying, though nobody knows who coined it or where it came from. Perhaps, like the wheel, it dates back to the ancient Sumerians. The phrase, “cash is king," is part of a larger saying:

“Revenue is vanity, profit is sanity, but cash is king"

Like the wheel, cash makes assets move. It is a basic and fundamental concept, also like the wheel. Cash makes a business move. Cash pays the bills. So, what’s this have to do with a business owner wanting to retire and exit their business?

That business owner needs to adopt the mantra and live religiously by the principle of “cash is king.” Cash is the number one element that can add value to your business. That may sound a bit harsh, but preparing your business to sell requires a change in mindset of how you run your business.

After all, your business provided you with a living, gave you the ability to provide for your family, provided a living for your employees families. Your business provided a service to your community, one that is appreciated and valued. There is value in those achievements. But how do you quantify that type of value? Some call it Goodwill. Some call it Blue Sky. You might as well call it Air. Those achievements are selling points - but they do not add tangible value to your business that can be quantified.

Maximize Value to Sell Your Business

In the end, buyers are not buying your memories. They are not buying all the blood, sweat, and tears. They are buying the end result of that blood, sweat and tears - but not the process. A buyer is essentially looking at how much cash does this business produce for me to:

• Pay myself, and
• Service debt.

Perhaps the buyer is not relying on your business to provide them a salary, in which case those two things are:

• Service debt, and
• Reinvest in growth.

In order for you to maximize the value of your business you have to start running your business to sell it - not to grow it or provide yourself a living - but to maximize its value. How? Start living by the principle of “cash is king.”

Tip #1: Run Your Business to Show Profitability

“Cash is king.” Buyers look at cash. Banks look at cash. Start running your business to show profitability. Take that cash to the bottom line, which means show it on paper. Increase margins by trimming the fat. Don’t jump into an expensive marketing campaign you are not positive will increase your margins. Don’t hire an expensive consultant to help you grow. Instead of investing in those areas, invest in the value of the business by taking that amount to the bottom line.

Tip # 2: Pay Yourself

Pay yourself more THROUGH PAYROLL OF THE BUSINESS. This may be contradictory to how you have been paying yourself. One of the easiest ways to increase your cash is to pay yourself a salary run through payroll. It’s called a discretionary cash flow item and is used to help figure the cash flow of your business. There are other discretionary expenses that qualify as cash flow, but an owner salary is often the biggest and easiest way to maximize cash flow and value. It is also living by the concept of ‘Cash is king.'

Tip # 3: Understand Tax Obligations

Cash is also king after the transaction when the tax man cometh to take his cash. So, you have to get with your CPA to discuss how to minimize taxes. Set that long overdue meeting and begin planning on how to minimize taxes and where to invest that lump sum of cash you get at closing.

What we sell the business for is important - but what you get to keep after the fact is even more important. Your tax advisor can help you with this. Begin planning now with your team. Don’t have a financial advisor? Get one. They are everywhere. Do your due diligence and pick one you feel comfortable with.

All of this is part of adding value to your business. Change your mindset from running your business to provide a living; to running your business to add value to your business. The first and most important part of adding value to your business is living by the concept of “cash is king.”

Revenue is vanity, profit is sanity, but cash is king.

📈 Main Street Metrics FOCUS: Full Service Restaurants NAICS: 722511 SIC: 5812-06 Valuation Metrics 30% - 50% Annual Sales 2-3x SDE 3-4x EBITDA

Hot Industries Top 3 Most Active Industries Construction Restaurants Manufacturing Source: IBBA Q2 ’23 Executive Report

Are Your Affairs in Order? Organize your will and estate. Plan for the sale of your business as if you were not going to be around to enjoy your cash. A will and estate plan is critical as part of protecting you, your assets, and your family. A good plan can also help ensure you will maximize the value of your business for not only you, but your loved ones as well.

RESOURCES & INFORMATION $10.00 Business Acquisitions A-to-Z: The Authoritative Guide on Buying and Selling Businesses Learn from a professional Business Broker and M&A Advisor how to buy and sell small-to-medium sized businesses. You will... Read more Get it now! ​

​ ​International Business Brokerage Association​ ​M&A Source ​ ​Berkery Noyes​ ​Small Business Administration​

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