Would you rather own a business that's a cash generating machine or a business that constantly requires that you put more and more cash into it every year?
Or the related question, "Would you like to own a business with strong cash flow or a business with weak cash flow?"
On the one hand, they are both dumb questions! J (Since the answer is pretty obvious.)
On the other hand, I believe strongly that there is value in answering those questions (preferably out loud).
Then take a look at your own business and determine whether it is a good generator of cash or not.
Most business owners don't pay much attention to cash, or the cash generating ability of their business, unless there's a problem. They get wrapped up in the day-to-day work of the business and seldom look at their business like an investor would.
It's All About Cash
A business that never produces excess cash is a bad business.
A business that regularly generates excess cash (in an amount greater than what needs to be reinvested in the business to sustain and grow the business) is a great business. It provides the owners with capital that can be used to grow their personal net worth and allocate their capital across a wider range of assets.
In Warren Buffet's 2013 Annual Letter to Shareholders (published in 2014), he talks about the need to invest Berkshire Hathaway's "endless gushers of cash".
What a fantastic description of what we want to achieve in our companies. An endless gusher of cash. I love it! J
The Big Question
Here is a question worth considering:
What number, or set of numbers, do you currently monitor/evaluate every month regarding the ability of your business to generate cash for its owners?
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