CEO Coaching: Liquid Assets Are A Beautiful Thing!

Years ago, I served on a public company board of directors with a prominent investor. Like most successful people I’ve known, a few maxims drove his success. The one I heard repeatedly from him was: “Rule number one in business is never run out of cash! Rule number two is never violate rule number one!”

The pressure to “get your cash to work” is severe for most CEOs. If you’re publicly owned, you’ll likely have stockholders agitating for you to buy something, expand or send out dividend checks. Cash doesn’t provide a good return, especially in a low interest rate environment.

However, just like your insurance policy may not provide a good return in most years, you’re darn glad you have it at least a few times in your life!

I’ve witnessed all sorts of businesses run into an unpredicted buzzsaw, and those with substantial liquid assets were much more likely to get out of trouble. 

We counsel young people entering the post-education work world to save six months or more of living expenses for emergencies (e.g., the income tap gets completely turned off). It also seems like a good practice for most businesses, regardless of what pressure you might have to get your money to work.

Not one business that I know had “global pandemic” on their risk management horizon. Mostly, I counsel businesses to plan for the high likelihood events that could be catastrophic, but as we now know, some things are terribly disruptive and virtually impossible to foresee. Having the equivalent of six to 12 months of operating expense in cash didn’t seem like a luxury in 2020.

Some of you have a predictable business model, at least historically. You may feel more comfortable working with little cash in the bank and an available line of credit. However, I can think of three or four clients in the past five years, not considering the pandemic, that had “out of the blue” events that required liquid assets. They were lucky to have had some dry powder on hand. Raising money when you are desperate is not fun and if you can find it, it’ll be very expensive!

As the saying goes, the definition of a banker is someone who wants to rent you an umbrella when the sun shines and wants it back when the first drop falls. Don’t forget rule number one!

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