Thursday, March 30, 2023

The Thing That Generates Cash-Flow

By Anand Tamboli

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When a company lacks an asset, people become a bottleneck. The bottleneck very well could be the founder or the owner of that business. Bottleneck then becomes a cash-flow blocker and limits growth

Many of you might know me from my days at Knewron Technologies. When I sold that company five years ago, it was a mixed experience. But one critical insight that I have gotten from that transaction remains a big one to this date with me. I realised I could have gotten a better value from it, only if I had built enough assets. It wasn’t just my realisation, the buyers hinted at that too.

The point is income always follows assets. And that means, if you are intending to increase the value or valuation of your business, if you are intending to increase cash-flow in business, then having enough appropriate assets is going to be the key.

What’s an asset?

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In plain simple dictionary terms, an asset is something that is owned by a business, has value, and can be used to generate income or provide future economic benefits.

Assets can be tangible, such as property, equipment, tools, inventory, etc, or intangible, such as patents, designs, trademarks, copyrights, goodwill, investments, and so on.

Tangible assets are easier to recognise, understand, and evaluate. However, intangible assets are often difficult to understand and so to evaluate. Nonetheless, many of us can recognise them easily.

Assets are important to businesses because they can be used to generate income, support operations, and provide value to the business. When it comes down to the assessment of their value or cash flow by the bank or investors, assets play a crucial role. They become a key factor in determining the right value of a business.

Especially for small businesses or startups, assets are like a lifeline. Assets being one of the most important things, founders, entrepreneurs, and business owners must pay attention to creating them.

Startups and small businesses

The obvious question you might now have is, why am I mixing startups and small businesses? Isn’t there a difference in what they do? Well, it’s not that simple.

Startups and small businesses are similar in that they are both small companies. The key difference is that startups are often focused on developing and bringing a new product or service to market and may be riskier than small businesses. Small businesses, on the other hand, are focused on providing products or services that are already in demand and may be more stable and less risky.

“When a company lacks an asset, people become a bottleneck.”

Despite these differences, startups and small businesses share some key similarities. Both are usually owned and operated by a small team or an individual, and they both have a limited budget and resources. Both startups and small businesses are also subject to the same laws and regulations as larger companies, and they both face similar challenges as they try to grow and succeed.

The key issue

When it comes to assets, both startups and small businesses are likely to fail the test. They don’t have enough assets. Their constant state of flux is indicative of the absence of assets.
A good rule of thumb is, when a company lacks an asset, people become a bottleneck. The bottleneck very well could be the founder or the owner of that business. Bottleneck then becomes a cash-flow blocker and limits growth.

So, think about your business. Does it have bottlenecks? Are they just a few or many?

Why assets are important

Having assets brings several benefits. The first and foremost thing you do with an asset is to generate income. Whether it is a piece of equipment or inventory, or goods or services that can be produced and sold to generate income for the business. These assets are necessary for the day-to-day operation of a business. Without them it becomes difficult for the business to function.

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