You can have the best work and strongest team, but without cash, your business is in trouble. Learn from these real-world examples to stay ahead of the cash flow crisis

There are many ways independent news organizations can judge their financial performance. We can increase advertising sales, raise more money, or showcase profitable business models. We can highlight areas with real growth potential. We can highlight areas where we have real potential for growth.

But all of that — yes, even a healthy P&L — doesn’t matter if you don’t have enough cash in the bank.

I work with organizations in transition. In the ideal, that means that they are ready to  invest some time and resources to grow and transform. They may hire me to strengthen operations, develop new strategies or help put a plan into action. Whatever reason that they want to work with me, we’re working together to help the organization transform and thrive.

In less-than-ideal situations, the organization is already in trouble. And regardless of the root cause, it almost always shows up in the bank account in the end. And then they get stuck.

Here are three examples of different organizations, all facing distinct cash challenges.

Organization A: strong model, weak operations

Problem: cash flow 

This organization has a really strong, diverse business model with various products, and a heavy reliance earned revenue and guaranteed contracts. They have several healthy business lines (and one struggling). It has a small cushion of cash (mostly from PPP money, which was a one-time infusion), and decided to make some investments in new ventures. 

However, a few things went wrong:

• They didn’t pivot quickly enough when the new ventures weren’t gaining traction, and instead kept investing.

• A key staffer left in charge of invoicing, and they got seriously behind on collecting their payments. At one point, over 40% of their revenue booked hadn’t been collected. 

• Their business is very cyclical, which meant they wouldn’t actually close all their deals or see their cash in until much later in the year.

In the end, this organization is much closer to the financial edge than they realized. Even though they have a healthy business on paper, they have to make a lot of hard choices because they don’t have enough cash on hand.

Organization B: limited safety net 

Problem: cash reserves

While the organization’s initial challenges weren’t financial, they still led to significant unplanned spending. At the same time, core expenses are now growing a bit more quickly than the business. This snowballs into a financial crisis when these non-financial issues begin impacting their ability to generate revenue. Deals they count on either fall through, get canceled, or are delayed. As a result, the financial runway turns out to be much shorter and more uncertain than expected, ultimately forcing them to make some very difficult decisions due to a lack of available cash.

Organization C: overinvested in good times, hard to turn around when things slow down

Problem: need to pivot while they still can

This organization has a really great pandemic (I know, right?). Even before 2020, the market was shifting in their favor. Revenue is growing at a healthy pace, and then — boom! — the pandemic hits and their income skyrockets. All of the factors are really working in their favor, and it seems that the pandemic is just accelerating the change in the market. This should signal that they’re on the right track, so they decide to expand. They are strategic — when they hire new staff, they invest in areas to diversify the business. But, they go a bit too far. Some of the new investments have promise but take too long to actually become profitable. Other ventures have weak margins and end up costing more than expected. Then, their core revenue streams flatline and starts trending down–the market wasn’t as strong as they thought. Now, they are burning cash more quickly faster than they can afford.

So what should you do to avoid the above situations? 

1. Know where your money comes from from. Check your cash flow statement (check out my AI generated financial statements 101 here). How much of your cash is coming from your operating activities, versus non-operating or one-time activities (IE, PPP loans forgiven in the pandemic)?

2. Pivot. I’ll admit it– I’m biased toward getting new products out to market when they’re (hopefully) good enough, rather than waiting for them to be perfect. I want  to find out as soon as I can if there is actually traction. Then I want to invest more in products showing growth potential—or be willing to admit failure and pivot. Decide upfront what your goals are and define what success looks like.

3. Set financial limits: What’s the minimum amount of reserves you need on hand? How much flexibility do you have in cutting your budget? When will you decide to make permanent hard choices, like cutting staff? 

4. Understand your business: You may have cash on hand or runway, but how reliable is it for the future? Even if business is good now, will the new money come in when you need it? And know your burn rate!

5. Keep an eye on things: Watch for trends, and unexpected expenses. Is the market doing what you expect?  Do you have any weaknesses in your own operations? And remember:  non-financial crises can easily turn into financial ones.

You can have the most impactful journalism in the world, the best products, the most amazing services — but if you don’t have cash, you can’t keep going.

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Cite this article

Myers, Kate (2024, Oct. 8). Cash is queen. Reynolds Journalism Institute. Retrieved from: https://rjionline.org/news/cash-is-queen/