When I was in college, I read a book called And the Wolf Finally Came: The Decline of the American Steel Industry by John P. Hoerr (1988).
This book tells of a meeting between stakeholders at a steel mill and the famed corporate raider, T. Boone Pickens. Upon entering Mr. Pickens office, they noticed an embroidered pillow that read “Happiness is a Positive Cash Flow.” As an investor, Mr. Pickens understood that companies cannot survive without positive cash flow.
At the time, I didn’t really grasp the significance of this sentence (like a lot of other things I learned as an undergraduate in business school). After many years of small business operations and financial management experience, I have gained a deep respect for the wisdom in the saying.
It is important to understand that cash flow is different from income.
Income is the difference between sales revenue (collected and uncollected) less expenses (paid and unpaid).You can make a million dollars in income and still end up bankrupt if you aren’t able to collect the cash from customers after the sales.
Cash flow, on the other hand, is the difference between the actual cash a company receives from customers less the cash actually paid for expenses (payroll, vendors, taxes, etc.). Without cash flow, it is impossible to pay bills and employees, let alone take advantage of growth opportunities. This is why analyzing and managing cash flow is particularly important for small businesses because there is such a small margin for error when cash flow is tight or negative.
As a businessman, I've come to know that yes, happiness is a positive cash flow.