Question

A well-known poem about accounting was written by H.S. Bailey, Jr. and published in 1975 in Publishers Weekly:

“Though my bottom line is black, I am flat upon my back. My cash flows out and customers pay slow. The growth of my receivables is almost unbelievable. The result is certain—unremitting woe! And I hear the banker utter an ominous low mutter—“Watch cash flow.”

Discuss the message that Mr. Bailey was trying to convey through this poem.

Answer 1

Mr. Bailey is trying to highlight the importance of cash inflow in the business. He is conveying a message that the bottom line (Profit) can be good for a business due to high credit sales to the customer, but until the customers pay the cash that they owe for the products sold to them, the business will not survive for long unless the cash flow improves in the business.

I am flat upon my back is referred to as the difficult situation the business is in due to slow cash infflow from the customers.

Mr. Bailey is highlighting the fact that increasing the receivables is the easy part and any business can increase the amount of receivables and in-turn increase the bottom line (Profits) as per the accounting methodologies and practices across the world, but until those receivables are realized in cash / real funds, the business cannot survive and have a sustainable growth. If a business continues to increase only its receivables without monitoring the amount of cash flows that need to come in, the result or the outcome of such a business will also be negative in the long term (i.e. unremitting woe).

The same concern of monitoring the incoming cash flows is also been raised by the banker. As in the absence of sufficient cash inflow , the business will not be able to pay off its liabilities / obligations in a timely manner and its existence will not continue for long.

The business may not be considered to be a 'going concern' and may soon be liquidated in the absence of sufficient cash flows.