What Debbie Reynolds Might Say About Cash Flow

If I asked you “How much is each case type worth?” “How much NEW money comes in for each case type that hires the firm?” “What is the value of each case?” and “What percent of each dollar billed is actually collected?”  Can you tell me?

Can you tell me by percentage what you invest in marketing? How about the details of that marketing budget?  Can you tell me what you invest – as a percent of gross revenues – in Internet, Yellow Pages, TV, Radio, or Print advertising? Can you tell me what your labor costs are as a percentage of revenue?

If you don’t have access to these numbers with the click of a button, you run the risk of captaining your ship onto the rocks of frustration or worse…

Debbie Reynolds at home in L.A. 1986 (photo by Allan Warren)

I’m going to borrow on a little celebrity today, an example of what can happen when a business owner doesn’t manage cash flow even though she’s very wheel-heeled. I first learned about Debbie Reynolds’ hotel business through Maryland bankruptcy attorney Laura J. Margulies. The Margulies’ “bankruptcies involving famous people” page is inviting and lets potential clients know that “bankruptcy can happen to anyone.” (Margulies did exactly what I recommend in my blog on Borrowing Celebrity, have you read that yet?)

Debbie Reynolds Hollywood Hotel Debacle

In 1992, the award-winning actress and her then husband Richard Hamlett, a real estate developer, expanded their operations into Las Vegas. They purchased the closed Paddlewheel Hotel & Casino for $2.2 million, renaming it the “Debbie Reynolds Hollywood Hotel.” The actress had big plans to spend $15 million on renovating the hotel and building a theatre and museum for celebrity memorabilia. From the moment Hollywood Hotel reopened in 1993, Reynolds was unable to control and manage her cash flow.

Although Jackpot, Inc., operated the casino under its gaming license and paid rent to the hotel, Reynolds was losing about $12,000 a month on that arrangement. In 1994, Debbie Reynolds Hotel & Casino, Inc., went public to raise cash and spent more than $7 million on additional renovations. Instead of focusing on eliminating Jackpot and getting its own gaming license, Reynolds concentrated on selling hotel time-share units which, unfortunately, cost more to sell than the sale price. She also paid managers exorbitant salaries with top tier perquisites (the employee dining room alone was losing $75,000 a month). The operation was running a negative monthly cash flow of about $450,000.

By the time Reynolds was willing to take over the casino operation, the business couldn’t meet the capital requirements for a gaming license from the state Gaming Control Board — poor cash flow made that goal unobtainable. In 1996, Reynolds and Hamlett were divorced. After a last ditch effort to sell the business for $16.8 million collapsed, Reynolds and the Hollywood Hotel each filed bankruptcy in 1997. Her “Old Hollywood” dream resort was auctioned off to the World Wrestling Federation in 1998 for $10.65 million (along with the time shares).

Hollywood dreams of business successes are great, but Ms. Reynolds or her advisors didn’t know their numbers, they needed a system and so do you.

Instruments of Measure

You have to actively manage your cash flow to get control over it, it won’t just happen. At a minimum, do a monthly cash flow analysis (weekly is even better). How else can you determine where your money is coming from or where it is being invested?

Your greatest value to the firm is at the helm. Don’t use up your valuable time entering figures into an Excel spreadsheet at the end of another busy day. When you lose billable hours, you lose money. I’ve worked with many attorneys and, as well-intentioned as they are in the beginning, all it takes is a few busy weeks in court and bookkeeping comes to a standstill. Achieving positive cash flow takes work. If you don’t have a bookkeeper yet, get one. If you don’t have business accounting software like Sage 50, QuickBooks, or AccountEdge, buy one. (I prefer the QuickBooks online version.)

Once you’ve settled on accounting software and delegated input to a bookkeeper, a mere “touch of the button” will generate the reports – the instruments of measure – that you need to track and manage cash flow. As the captain of your ship, that’s how you steer your business, enabling you to project where the firm will be next month, next quarter, and next year.

Building a better business, one captain at a time…

Richard James

As a result of his track record for achieving what most describe as “phenomenal” growth rates for his clients, Richard James, CEO of Automated Business Results, LLC, is quickly gaining a national reputation as “the Legal Systems Expert.” His secret to success is simple. Richard has devised a seven step system for designing and implementing automated marketing systems that grow your business FAST. If you’re looking to develop a practice that supports your lifestyle rather than completely undermining it, call Richard James today.

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