Jim Porter, my boss at the time, told me to fly to Los Angeles for dinner to discuss our cash problem. Jim was my champion and mentor within Informatics General Corporation. He was the SVP who recommended Informatics buy the company I helped found.
“Why are the accounts receivable so high?” Jim asked.
“There is a lot going on, and I guess we let it slip. After all, sales is my greater priority,” I said.
Acting Like an Owner
“If you don’t collect the money on a sale, is it a sale? You never allowed your accounts receivable to grow like this when you owned the business,” he said.
“Okay. Here is what happened. Our receivables are growing because we don’t have to worry about cash anymore. We have you,” I said.
He sat back. Looked me in the eye and said, “Now I understand. That makes perfect sense.”
“If you are to become the general manager you hope to become, you need to focus on your cash flow. Cash flow is the lifeblood of a healthy business whether you are a private company or a public company,” he said.
There Is No Sugar Daddy
Our annual revenues were $7mm and our receivables were $1mm. Not good. The simple answer is I got sloppy. When the company was ours, we stayed on top of our accounts receivable. If we didn’t, we had to visit our banker and beg for a working capital loan. Not fun.
Now we were part of a public company. We had a sugar daddy, or so I thought.
“What are you going to do about it?” he asked.
“This was a real miss on my part, and I am sorry we had to have this dinner. I promise it won’t happen again,” I said.
He could see I was sincere and concerned. I don’t like being called out for doing a bad job. But I was being called out, and I was doing a bad job managing the business. A business his company paid good money to buy.
Positive Cash-Flow Plan
“I have a three point plan. I am going to call the big receivables personally to collect the money they owe. Then our CFO will collect the next set of large receivables. Lastly, our controller and his accounting staff will clean up the smaller receivables. Within a month, we aim to be at our normal receivable level,” I said.
He listened patiently then said, “Sounds good to me.”
I said, “You seem to be pretty calm about this whole situation.”
I’ll never forget his answer.
“Why should I be concerned? Look how concerned you are. I would be concerned if you weren’t.”