The first major mistake that kills most small businesses is cash flow. We’ll talk about how to avoid that cow-pie today.
The shortest distance between you and smelly shoes is to let your cash stop flowing. Balancing profit and loss is the lifeblood of your company. In the early days of your venture, it is especially critical to conduct a daily review of your financial standing. Yes—I said daily, so do it! Some days the review will take five minutes; other days, your company will require a more detailed look. Regardless of how long it takes, make the time. You must know whether or not you made money, and you must know it today. Right now.
The first step in staying on top of your daily cash flow is to devise a thorough tracking system well before the cash actually starts to flow. It doesn’t have to be complicated, but the end result of your system must be that it gives you a clear picture of what went out and what came in each day. Apply your system so that you always know how your financial picture is shaping up for the month.
Determine how you will structure your tracking system. Out of the gate, a simple Excel spreadsheet might work nicely. Once you start increasing your income and expenses, you will want to consider a prepackaged software program like Quicken or QuickBooks. Whatever system you choose, be disciplined enough to track your cash flow daily (there are those italics again). It’s like watching your step between here and the fence out in the pasture. If you don’t do it, you’ll regret it.
Just as important as how you track your cash flow is who does it. If you already have the skills to do it, use them; if not, you can take a bookkeeping class online or through your local community college, or even just check out a book from the library. If you think you will need extra help, hire an affordable, part-time bookkeeper. As you get a greater vision for your venture, the best thing to do is to find someone who is able to wear many different hats: administrative assistant, editor, bookkeeper, customer service agent—whatever gaps you need to fill. This hire will be a great asset as your venture progresses.
If you decide to do the bookkeeping yourself, be sure to refer to the principles on knowing yourself in Chapter 1, “Grit,” and be sure that you really are up to the task. Specifically, are you a detail-oriented person who will track every penny—who loves tracking every penny—in and out? If you’re not, don’t be penny wise and pound foolish. Hire someone who will track your pennies and your pounds.
While we’re on the topic of cash flow, I want to talk about a related cow pie that many businesses owners can’t seem to avoid. It is the mess-waiting-to-be-stepped-in of “robbing Peter to pay Paul.” Leave Peter alone! Paul will take care of himself! What I mean is, taking money from your business’s marketing budget (or any department’s budget) to make your personal car payment (or any personal payment) not only impairs your marketing but will likely cripple your total cash flow. The same goes for using money from one business to support another. These are accounting nightmares waiting to happen. Keep your money separate and your books clean. Consistency here maintains good trust relationships all around.
Occasionally, you may find that some borrowing is unavoidable. If that is the case, keep detailed notes of the transaction. Make sure you know exactly when what went where and why it went there. An audit is not the place to sit, scratch your head, and wonder, “Why the [cow-pie] did I do that?”
Your dream really can thrive, but only if you understand and manage your cash flow.
Porter’s Points – The Cash Flow Cow Pie
• Cows need to be milked twice a day. Tracking your cash flow is twice as easy—you only have to do it once a day. But you have to do it once a day, or else, like the cows, things might blow up in your face.
• Your system for tracking your cash flow can be as simple as sitting down with five minutes and an Excel spreadsheet, or it can be as complicated as hunting out a new hire. If you can’t hack it on your own, get someone who can. Chapters 14 and 15 speak more to this point.
• Leave business cash in the business! To the extent that you can, keep personal needs away from business funds. If you have to cross borders, reread the second bullet and track the transactions religiously.
Next time we’ll get into the second common cow-pie for entrepreneurs: death by net.
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Toady we start Chapter 8: Avoiding Cow Pies with Ron’s introduction. If you don’t know what a cow pie is, you’ll soon learn!
I had a funny experience a while back where I dropped the term “cow pie” in casual business conversation in New York City. It was funny because Rich and I, being small-town rural types, both knew exactly what I meant, but the gentlemen we were with, being big-city businessmen, had no idea. From their blank looks, they seemed to be trying to figure out what we did with our pumpkins or apples if we were making pies out of cows.
That experience made me realize that both the term and its business application may need some explanation. After all, if it were as simple as swapping beef for berries in Grandma’s time-honored recipe, you’d be wondering why you ought to avoid this particular piece of pie. When you leave this chapter, you will have a clear understanding of why you don’t ever want to be served a slice of cow pie.
Business has its own kinds of cow pies. It can be easy to let your accounts receivable start to lag, for example, or to slacken the frequency of tracking your cash flow. Once you head off into that particular pasture, though, you’re bound to wind up with a boot stuck in the muck.
In this chapter, Rich is going to outline four of the most common “cow pies” in business. As with the real thing, do your level best to avoid these not-so-fun surprises. The four business cow pies are: unmonitored cash flow, lagging accounts receivable, out-of-balance suppliers and customers, and failure to assess your ever-changing business landscape.
Cow pies are not entirely avoidable. No matter how gingerly you step, you will, from time to time, feel the squish under your shoe and the queasiness in your stomach that accompanies contact. Happily for you—and your shoes—you can circumvent most cow pie snafus with a bit of conscientious planning.
We’ll talk next time about the first cow pie entrepreneurs must avoid: the cash flow cow pie.
Since all good things (and hopefully all bad as well!) must come to an end, it’s important for entrepreneurs to set clear expectations at the beginning for how to exit a partnership.
I’ve had several really good, healthy partnerships, and I’ve had several that, to put it mildly, “went bad.” I’ve found these situations to be among the most painful, drawn-out experiences of my life. As I reflect on these partnerships it’s evident that each began to go south when one of two things occurred:
• Our ultimate goals or intentions became misaligned
• We began to seriously question each other’s motives
Once one of these things had occurred, it was all downhill from there.
In Chapter 19,“No Exit Strategy?” I will describe in detail a variety of ways to exit your business. For now, I’ll just reiterate that the exit plan must be clear. Your hope and design is that the exit will be a good thing for all involved. But what if it isn’t? What then? Plan it and capture it in contract form. Have your attorney review it. Make sure both the amicable separation and the hostile separation are clearly defined. Then do your best to ensure that the parting of the ways is a positive experience for all involved.
Business partnerships are not intended to last forever. Oftentimes, there will be an exit, and many times, there even should be. Your business agreement did not contain the words, “’Til death do us part,” so why should reaching the end of your road together be surprising? The problem with terminating a partnership stems from your exit plan not being laid out and having an unclear “last step” in the life of the partnership.
In reality, the ultimate success of any business is to have a positive exit event, which by its very definition means a parting of ways. If you leave it to chance, there is no question that people will get defensive, and what could have been a preplanned, celebrated, and successful parting of the ways will become something ugly—something very, very ugly.
Porter’s Points—Time to Part Ways
• Your partnership will end. Do not let the ending rest on happenstance–plan it out.
• Your ultimate success as a partnership will be a successful exit. Your worst failure will be a hostile parting of ways.
That does it for Chapter 7: Fish & Partners! Next time we’ll start talking about the big mistakes that kill most small businesses and how to avoid them in Chapter 8: Avoiding Cow Pies.
After learning that three is a dangerous number, today we talk about starting a business with close friends or family. It too can be dangerous, if not properly handled.
Ah, the family business. It’s a time-honored, American tradition. It’s also one of the best ways to kill your venture (or your siblings). Everyone likes to complain about work from time to time, but it’s not as easy to complain during Thanksgiving dinner when your boss is the one carving the turkey. This can cause some real problems, for your venture and your appetite.
I’ve seen situations where a husband and wife got involved in businesses together, and it took a heavy toll on both the business and the marriage. I’ve known quite a few people who own businesses where their entire family is involved.
There are times when family businesses work, but frequently they don’t. On the outside, they may seem to work just fine, but if you ask for the inside story, you’ll find out that uncles don’t talk with nephews, and the son hasn’t spoken to the father in five years, and someone in the family is not pulling their weight.
My father is a very wise and thoughtful man. He was the elected county attorney in our community for 36 years. At the age of four he became blind, having both of his eyes removed to prevent the spread of cancer. His experience as county attorney allowed him to offer the following invaluable insight. “Most partnerships fail because each partner only wants to give forty-five percent. With that kind of effort, the venture is always coming up a bit short. In order to find success, each partner needs to be willing to give seventy percent.” (John. O. Christiansen)
Frequently, with family we don’t feel as big a need to prove ourselves or do our part. Right or wrong, it seems easier to take advantage of someone you love.
Again, the only thing that can be more disruptive and more damaging to a family-run business than failure is success, if it isn’t approached right. Challenges can help people work together and sacrifice. Success can bring out greed and encourage loved ones to cut in line or cut and run altogether.
There was a very successful businessman who amassed a fortune worth over one billion dollars. As he retired, his entire family became involved at various levels with the holdings of the company. The family now hates each other; there have been internal power plays for control, suicides, divorce, and every other crisis that can be imagined in a family. Most of the discord revolves around “the family money.” I once heard this famous businessman state he would forego all of his riches just to have a united family.
Is it worth sacrificing your greatest riches in life—namely, your family relationships—for the fleeting riches of this life? I strongly believe not!
It’s important to note that family-run ventures can work, if you take the right precautions. What are those precautions? From my observation, the most important thing is to have rules and structures that clearly and openly delineate the involvement of the family members who enter the business. The second precaution? Give time, energy, and focus on a goal or vision greater than the acquisition of money or things.
Make sure you feel comfortable having open, honest discussions with your family member partners. Disagreement or conflict about the business cannot translate into contention in the home or at family events. However difficult it can be, you have to make sure that everyone is mature enough to keep the two relationships separate.
No matter who your partner is, you need to share a work ethic and style. You also need to be invested in each other’s image. Help your partner look good. There is no room for selfishness in any partnership. Unfortunately, there is something about family businesses that can readily bring that destructive character trait to the surface.
Porter’s Points—The Friends and Family Plan
• If you choose to partner with family, treat the partnership like a business, not a family outing.
• Temper the quest for success and the unpleasant scenarios that quest can create, by giving time, talents, and energy to a worthwhile cause (charity, humanitarian effort, foundation, etc.).
• Put your partners’ well-being before your own.
If you want to start a family business, or already have one, make sure you have rules in place that ensure close relationships aren’t sacrificed!
