If you are a professional accountant, investor, or business owner, you can stop right here. This blog is for the financially-challenged technocrats among us. It wasn't until early 2017 that I realized how ignorant I was on these topics, so I picked up a $10 Udemy course by Chris Haroun titled "An Entire MBA in One Course". It's a great place to start and one of the best $10 purchases I've ever made.

While the bottom line, or net income, of a company's income statement generates media buzz unlike any other financial measurement, it doesn't tell the whole story. Sometimes companies go bankrupt even with positive net income. Why? There is an accounting system known as accrual-based accounting. This system counts revenue and expenses as they occur whether or not you are actually paid. At the time of this writing, I perform live training for O'Reilly (Safari). When I sign deals with them, I am immediately owed a grant payment to cover the cost of course development. Under the accrual accounting system, I would mark the income now despite not receiving the check for 10 days. O'Reilly would mark the expenses now despite not sending the check for 10 days. I didn't get richer and O'Reilly didn't get poorer; no cash has changed hands.

Ignoring the accounting books, this 10 day disconnect between income and cash inflow highlights the purpose of this post. As a business owner, regardless of your internal accounting system, you must pay attention to your cash flow. This is important because you cannot and should not measure your success by your net income alone. High net income and poor cash flow can make a company look artificially profitable.

At the time of this writing, about 40% of my net income is money I've earned through delivery but I haven't been paid yet. My bottom line looks great; my cash flow is abysmal. This is the result of unfavorable payment terms from some contracts I signed early on, before I really understood the impact. I was totally cool with delivering my services only to be paid for it several months later.

When I needed cash to make new capital investments, such as buying additional sound-proofing and higher quality microphone equipment for recorded training, I had to wait for the cash payments to flow in. This was both unpleasant and unexpected when I signed the deals. Sure, I understood the theory from books and online learning, but when you experience it in your own business, you truly appreciate that cash is king. Fight to get paid sooner whenever you can.

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