Starting Your First Business — Foreword

This isn’t your typical Foreword to a book. I hope it’s one of the few that you don’t skip over on your way to Chapter 1! Besides, how could anyone write a useless, fluffy Foreword for a book that is so practical, helpful, and full of "Reality Checks"?

Jim is the real deal. He’s built several firms, messed up a couple, and has experience helping others. As such, he knows what you need if you want to launch a business. You need specific examples that include website references and resource recommendations so you can do something about his ideas within minutes. You want experiences spelled out simply, giving you practical ideas that you can use immediately. You want him to give details including the price of some service or resource he suggests so you can know if it’s right for you—he’s done that. And you want to know that his advice is right and respected by those who have built and operated businesses for years—which it is.

Enough of the platitudes. Jim doesn’t waste your time in this book, so let’s not start with the Foreword. Instead, I’ll share some ideas on generating cash.
Cash Is King: Twelve Ways to Maintain Enough Cash to Grow Your Business

You need cash to run a business. And it’s best if you can generate it from your own efforts rather than bury yourself in a lot of debt up front.
As the “Growth Guy” columnist for Fortune Small Business magazine’s online edition, I wrote an article entitled “Finding Money You Didn’t Know You Had.”

Read that article, and consider the following dozen ideas for generating positive cash flow. Focus on doubling your cash. So many firms are short of cash, which makes it hard to sleep at night. And there is this misguided assumption that growing firms are by nature always supposed to be short of cash. In 1991, Dell was three weeks away from not making payroll—and their excuse was that they were simply growing so rapidly. Facing near extinction, they got serious about cash. Over the next ten years they moved their cash cycle from 63 days (meaning they paid out a dollar and it took 63 days to get it back) to minus 21 days (yes, you guessed it, they get a dollar 21 days before they have to pay it out). As a result, Dell defies the entrepreneurial law of gravity by actually generating more cash the faster they grow.

And they didn’t do this overnight. Start by trimming 10 days off your cash cycle. I just did this exercise with 8 Malaysian firms earlier this year. Most started out thinking there was really nothing they could do, but all ended up with substantive lists. Some areas of opportunity:

1) Stop saying, “Well, this is just the way it is in our industry.”

2) Have your available cash reported daily with a short explanation why it changed in the last 24 hours—and chart against accounts receivable (A/R) and accounts payable (A/P) weekly.

3) If you want to be paid sooner, ask—and have an excellent A/R person.

4) Give value back to customers that pay in advance or on time.

5) Get your bills out quicker.

6) Understand why your clients are paying later—many times there are recurring mistakes on the bill or the bills are not structured to make it easy for the customer to reconcile.

7) Understand your customers’ payment cycles and time your billings to coincide.

8) Pay many of your own expenses with a credit card so you can play the float.

9) Help your customers improve their cash so they can pay you.

10) Shorten product and service delivery cycle times. All of you have some kind of “work in progress.” The qyicker you complete projects, the quicker you get paid.

11) Have such a valuable product or service that you have some leverage with your customers.

12) Of course, improving your margins and profit improves cash.

One last parting thought: 50% of your success is due to luck. And I’ve learned to use luck as my guide. If I’m having a string of good luck (bumping into the right people, coming across ideas I need, getting some lucky breaks) it tells me I’m on the right path. In turn, if I find myself experiencing a string of bad luck, I take that as a sign I need to make a change to my strategy, product, or attitude. The key is to know whether the inevitable challenges you will face are just the normal bumps in the road that we all face as business owners, requiring us to persevere, or the business gods trying to get our attention, sometimes with a painful 2x4 upside the head, to let us know we’ve strayed from our focus or proper path. In either case, best of luck with your next venture.

Verne C. Harnish
Founder, Young Entrepreneurs’ Organization (YEO)
CEO, Gazelles, Inc.
April 2004