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Driving on Interstate 10 in Los Angeles is a curse. Devised in 1956 back when Dwight D. Eisenhower was President and decided to build the system of interstate highways across the country, it stretches some 2,500 miles from Santa Monica all the way through Texas and ends (or begins depending on your point of origin) in Jacksonville, Florida.
Forget about all the roads that were cobbled together and all the neighborhoods that were commandeered by imminent domain (never popular), and all the 18-wheelers that clog the lanes, the blistering heat through deserts, the monotony of driving vast stretches of nothingness (I have driven it across the country and back so I know) ... in Los Angeles? It is the traffic, of course. The traffic is suffocating, the exhaust, ugh. Angry drivers going nowhere fast cut you off or insult you in other admittedly creative interpretations of road rage. I once had a taco thrown at my windshield smearing its sour cream, salsa, beans, guacamole, and who knows what else all over my window, the shell itself getting caught on my windshield wiper. I had a heck of a time getting that mess off. I once had a fancy white Porsche 911 follow me into a gas station, the driver getting out of his car to berate me and call me an old, ugly, bitch, because I cut him off. (Ouch and in my defense that was only because wouldn’t let me in even though I had my turn signal on. And I wasn't even that old!) I pretended like I was going into my glove box for a gun and he boogied out of there. The nerve. I commuted on Interstate 10 for fifteen years and I have a lot of good stories. I avoid the road now. However, not long ago I ventured on the 10 heading for Pasadena to be interviewed for a new, brilliant video cast about entrepreneurship. The interviewer and creator, Tim Cason, is the owner of the shared working space and de facto advisor to a lot of his tenants. The space is called the CTRL Collective. This was a big ask. Why? Because I live in Venice. Those of you from the City of Angels will understand that. For those of you who are not? Driving East on Interstate 10, late in the afternoon is … challenging. The interview however turned out to be a great experience sand well worth the drive. As a part of the interview, Tim asked me for some of my favorite entrepreneur quotes. I have many: There are no good ideas, there is only good execution; Never buy too much inventory; Make a good controller your first hire; Never sacrifice your margins to get orders; and of course my most cherished and helpful quote that I say all-the-time-ad-nauseam is, The truth is in the numbers. Focusing on the last one, if you want the stem the cash flow drains on your company, do a trend analysis. And to do a proper analysis you must have accurate numbers. Assuming that is the case, the first step is to look at your cash flow statement and see where things are going sideways. Compare month to month. Actuals to projected. This year to last year. There is more to it, however. Let’s drill down on that a bit. I’ve identified four important types of analysis that can lead to cash flow challenges. Of course, as stated previously, the first line of defense is looking at your own numbers. 1. Trend Analysis This one is easy because you have all the numbers. You’re looking for trends. Are sales going up or down month-to-month? Are your monthly sales this year better than your same-month sales from last year? If they’re not increasing why? Look at the same thing for inventory levels, labor costs, gross profit, debt levels, all your overhead expenses. Is your inventory creeping up? Why? Can you reverse it? Are any of your expenses spiking? Why? Can you reverse it? Do this for each item on your cash flow statement, income statement and balance sheet. Charts are great for a trend analysis. You can easily see if things are going up or down. 2. Competitive Analysis Another important analysis is looking at your competitors. This one takes some sleuthing because you don’t have their numbers. What you can do, though, is go shopping. Go into stores and check on their prices. Are they higher or lower than your prices for similar products? Have they raised their prices recently? Have new competitors entered the market? An easier way is searching for competitors online. Do a deep dive search. Go to their websites. Check their prices and messaging. If you are selling a service, your competitors will most likely have a website. They may not have prices online, but you can always call them and inquire about their prices. Be creative. Go to tradeshows. Ask your customers if they were approached by one of your competitors. If they were, what prices were they offering? Make a list of your advantages and communicate that to your current and potential customers. Stay on top of this because you don’t want another company to steal your business. Make sure you buy your customers a nice holiday present. 3. Industry Analysis In one of my online entrepreneurial groups, I asked what the members’ biggest problems were. One guy complained about sales. He said that his salesman was only closing (getting orders) for twenty percent of his calls. I was taken aback because really, that’s a pretty healthy closing rate by anyone’s standards. However, I didn’t know his industry, and closing rates can vary by sector. But I did know that the average sales rate across all industries in the U.S. was 19 – 20%. ( I looked it up.) The point is to check and see what the average closing rate is for your particular industry. There are websites where you can access all types of information for your particular sector. Subscribe to one. Use it. Otherwise, you may think you have a sales problem when you really don’t. Maybe you don’t need more sales, but you need more leads. That would mean investing money into lead generation or marketing or advertising. This applies to any number on your cash flow statement; be they expenses or revenues. The result you want is, what is normal for your industry? And then you can aim to surpass that. 4. Economic Analysis This one is my favorites because I studied (and taught) economics in grad school. You should keep on top of what is going on with the U.S. and global economies because they can dramatically affect your company. Do you import products or component parts to make your products? Then tariffs can be brutal. Do you have working capital lines of credit? If the interest rate goes up a point or two, your debt payments will increase. If inflation is going up, not only does that increase the chances of interest rates going up, but it can also increase the price of your products as well as the salaries you need to pay your employees. Might the country fall into a recession? That may force some of your customers into bankruptcy or force them to book smaller orders. Some things are recession-proof. Those usually include essentials like healthcare and utilities. Discount retailers are usually considered recession-proof. The entertainment industry is called, recession-resistant if they offer escapism to beleaguered movie-goers. If your products or services are in that category, good for you. But if they’re not, you need to keep tabs on the economy. The good news is, economic numbers are readily available, although almost always with a lag effect. Look at the numbers, not what you’re reading on social media.
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In the early 2000s, the company where I was a partner had its largest accounts in Japan. At one point, we licensed eighteen stores spread across the country, mostly in Tokyo. There were men’s stores and women’s stores licensed to two different manufacturers/distributors.
When my children were young, I never went to Japan because I didn’t want to leave them for any length of time. However, as they aged, I started going there for various management duties. I loved Japan. I always stayed in the Excel Hotel in the Shibuya neighborhood of Tokyo. At that time, there was only one employee in the hotel who spoke English, a concierge. I spoke little to no Japanese other than the basics of good morning and thank you. That poor concierge must have been ecstatic when I left, because I hounded him every day for everything: how to catch a taxi, could I walk to Harajuku, where could I exchange money at a decent rate, directions to find and to use the subway system (super easy once you figure it out), restaurant recommendations, buying snacks and water, storing my luggage, catching a train to Kyoto … the list went on. I remember one particularly sweltering Summer day when it felt like my body was melting into the hot pavement amplified by the mass of humanity in Tokyo. Maybe made worse by jet lag, but by mid-afternoon I couldn’t work anymore. My colleague and I decided to blow off the rest of the day and ducked into a bar. I wore a flimsy dress and flip flops — the lightest outfit in my wardrobe, and we sat next to the window drinking cold Asahi’s (beer) and watched thousands of people rushing here and there as we laughed and schemed about strategy for the new women’s brand we were launching there. That is one of my happiest travel memories. I mentioned to him that there was a store in Harajuku who had purchased a couple thousand dollars’ worth of clothes and accessories from us and hadn’t paid us. It had been about six or seven months, well past the thirty-day terms we had given them. He enthusiastically said that we should go collect it, so we paid our bill and flagged down a taxi outside. I showed the driver the address which I had in my bag and we were off. I don’t know if you’ve ever driven in Tokyo, but it is quite an exercise in creativity and stick-to-itiveness. Even taxi drivers often don’t know where they’re going, and there doesn’t seem to be any rhyme or reason to how the streets are laid out. This was before GPS, of course, so we just kept trying and going down alleys and backing out of dead ends and laughing along with the driver who kindly waited for us when we finally found our destination, a tiny boutique in a residential area. I looked at my colleague and we went inside. He spoke basic Japanese and the shop owner spoke a bit of English, and we were able to explain why we were there and that he owed us money. This guy looked like a gangster. His boutique was a street wear skateboard shop and I was more than a wee bit nervous. I gave him my business card and a copy of his invoice. I looked into his eyes and with solemnity told him that he had to pay us. I waited. He nodded his head, bowed slightly, and it was obvious that he was embarrassed. He said he would pay. We shook his hand and got back into the waiting taxi (whose driver gave us a discount for his botched navigating, although who could blame him). The shop sent the money via wire transfer to our bank the next day. I was proud of myself. For those brief few moments I became a shakedown artist in Tokyo no less. Imagine that. I flew all the way to Tokyo, albeit for other things, but he didn’t know that. I collected $2,000 that was owed to our company. It wasn’t much, but it was the principle of the matter as far as I was concerned. Collect Your Damn Money When someone owes you money you should make every effort to collect it. It can be uncomfortable to call and ask someone for the money they owe. I get it. But you have to force yourself to do it. Give yourself a reward for every call you make. If you are making the products or providing the services, and the person is not paying you, that is not cool. You deserve to be paid. If I was willing to take time out of my Tokyo trip to go call on a store to collect the money owed to me, then you should be willing to call (or visit, better yet), the people who owe you money and hound them until you get paid. Then don’t sell to them again unless they have an excellent reason as to why they weren’t paying you. Collect your money. If you dropped $2,000 on the street, would you stop and pick it up? You know how I write to not be afraid to get out of the building? How I write to learn to sell? How I write that you should never be afraid to ask your vendors for a better deal, or ask your banker for better terms? This falls into that same category. Don’t be afraid to ask for the money that people owe you. Also, there’s all kinds of reasons why people don’t pay their bills and they are not always nefarious. Maybe they genuinely lost your invoice. Maybe they were on vacation. Maybe they had an unexpected expense and they’ll pay you the following week and make it up to you. You never know … unless you call them. Your Checklist: Write down everyone who owes you money and is late paying you. Call them and remind them that they are late. Collect the money.  Photo by Emily Morter on Unsplash  I’ve been hard at work with clients and working on my book about cash flow.
As more and more people approach our consulting company to solve their cash flow challenges, I realize that there is one question that most of them cannot sufficiently answer. The Question The question you need to be able to answer (and I will tell you how in this post): What is the root cause of your company’s cash flow problem? It could be a many different things. And of course, it’s usually a combination of a few things. Here are a few examples: Your sales are trending down. Your customers are taking too long to pay. You struggle to pay for raw materials to make your products, so you are late shipping. Your expenses are creeping up. Why is the Root Cause Important? It may sound obvious, but if you don’t know, you may be solving for the wrong problem. And completely ignoring the main one. It your problem is inadequate initial capitalization (you didn’t start your business with enough money), the solution for that is going to be completely different than if you hired too many people, or your expenses are too high, or your sales aren’t high enough. If your working capital is nonexistent, you can look at options like a working capital line of credit from the bank. If you have invoices to customers with good credit, you can explore factoring. If your expenses are too high, you need to find out why. If your overhead is bloated, yes, you may need to lay off some people, or buy a less expensive car, or rent a less expensive office/home, or delay an expansion of additional space. If you need to boost your sales, you may need to invest more money in marketing, or advertising, or hire a better sales manager. But make sure you do a thorough cost-benefit analysis to make sure it will be worth the investment. Sometimes, you can achieve an improved ROI with a smaller budget by being more creative. If you didn’t have enough money to start with, you may need to consider raising some money through an angel investor, or a friends and family round to alleviate the problem. Raising money can be a full-time job in and of itself. If that’s what you need to do, it’s a completely different solution than hiring a sales manager or laying off your administrative assistant. So how do you know what to do? That’s where the root cause comes into play. How do you figure that out? Do a Thorough Analysis The truth is in the numbers. Invest in a membership and tutorial for an accounting system. I use Quickbooks by Intuit, but you can research other software systems. Ask your accountant, or get a referral from a friend or other entrepreneurs you know. If you think you’re still too small to invest in accounting software, go through your bank and credit card statements, tally up all your deposits and purchases by month and do your own cash flow statement on a spreadsheet such as MS Excel. A cash flow statement is cash in, minus cash out. It’s really that simple. You don’t count cash in when you do the work or issue the invoice. You count cash in when cash come in. Same with cash out. However, I do like to keep a separate column showing when you booked the sale and when you invoiced the customers. That way, you can see if your customers aren’t paying you on time. That can be a huge contributor of cash flow problems. It you track this for several months, or better yet, a couple of years, most of the time the root of the problem will become obvious. Finally, if you have a question, ask me. Whether you’re a solopreneur or a business owner, proper cash flow management can save your company. Or it can kill it. According to the U.S. Bureau of Labor Statistics, cash flow problems are amongst the top reasons why businesses fail.  When my partner and I started our toy company we had taken an old, tired product (a hula hoop) and reinvented it in multiple fluorescent colors.
It was beautiful to see when you walked by the display in a store. The existing hula hoops at that time were boring light blue and pink. The gender association cliche of those colors was mildly annoying to me, too. We called our product, the Maui Hoop and invested in a booth at the New York Toy Fair. We planned a lavish, Hawaiian-themed decor. However, my partner and I knew that our sales would be limited to just one product, however cool it was. So we invented an even cooler product which we called the New Wave Hoop (it was the 80s, so … New Wave). Even with two products, our booth seemed a little empty so we came up with two more products that weren’t very good at all. In fact, I only remember one of them — a plastic tennis racket with no strings. A kid could dip it in a bucket of soapy water and wave it in the air to make giant bubbles. We didn’t get any orders on those. We did receive many orders, including a few chain stores on our two different hoops, and the following year we added quite a few things to our line of products. We were off and running. What You Need to Start a CompanyYou can start a company with one great product, but if you want to grow and be a real company, you must add more. Often, small companies are started by creatives who have an idea for a really cool product and then that’s all they do. They can’t or won’t add more products to their line. I’ve observed several reasons for this:
You think starting and running a company will be easier and safer with just one product to manage, but it’s actually harder. These companies always dwindle until they go out of business. Typically, buyers don’t want to buy from a company with only one product. A retail buyer takes a chance to order a product from a startup. It is always a bigger risk than buying from an established company. Why? It takes work to set up a new supplier in the system. If they only sell one thing, or if they don’t offer new products every season, why go to all that work? It’s easier to buy a similar product from a competitor that’s already set up in the system. Most novel products only have a lifespan of one or two years unless it becomes a classic which is rare. Again, not worth setting them up. Also, the statistics are working against startups in general. They have a higher chance of going out of business, and if they don’t have multiple products, that chance increases. I’ve observed the one-product paradox with more than one friend. In all cases, they invented a unique product, went to the effort and expense to manufacture and buy inventory, and then tried to sell it. I told two of them to add new products to their line. And no, different colors or patterns don’t qualify as new products. Product extensions are easy. Take the company in the photo above (which is completely hypothetical; I don’t know this company). I’ll posit that they start with face wash, then add moisturizer, then facial cleanser, eye cream, etc. Voila. It’s an entire line of products. The only novel part of this line could be the charcoal facial cleanser. Let’s say they were the first to introduce this concept. It’s completely novel. The brand’s other, subsequent products might be completely ordinary in the sphere of facial care. It doesn’t matter. If people love the cleanser, they have a good chance of buying the add-on products. Then the company can become a brand. After establishing itself and earning money, maybe they can add makeup products. Or sunscreen products. Or haircare products — shampoo infused with charcoal? That’s how you add new products. That is what you must do: add new products. After your first couple of seasons and decent performance at retail, buyers will continue to buy from you. Then you will have a real company. And why money should never be overlooked.  Of course you need customers. You need a few for proof of concept and to show you can sell. These things are important for investors.
But don’t overlook the importance of cash. Because cash is king. Customers are queen. Or bishops maybe. A CEO who is a potential client needs money. He’s hired three people to go out and prospect for customers. This is important. However, there is a problem if and when those orders land on his desk. How is he going to service those orders? He needs to add more equipment. He needs to pay for that equipment. This is for a SaaS company, but the same goes for companies that are making products and need to buy raw materials. And even service companies may need to hire more employees and pay them. In a way, they are the raw materials. I’ve worked with many CEOs in the last couple months as we grow our consulting practice. I’ve seen this problem over and over. Companies are so obsessed with customers that they forget about making their customers happy. You need cash to do that. The last thing you want is to land an important customer/client, and upset them to the point they won’t want to do business with you anymore. As someone who writes about cash flow, has done webinars and seminars about cash flow and is writing a book about cash flow, I am firmly in the camp of bootstrapping a startup. I’ve written about that, too. If you can bootstrap, by all means. However, it’s hard. And it takes a lot longer. We know that around three quarters of startups rely on a founder’s capital and cash from sales; that is the definition of bootstrapping (which comes from the expression, pull yourself up by the bootstraps). However, we also know that two-thirds of startups fail before their first decade in business. I don’t know. Maybe there’s a connection there. My partner and I started our first business in 1988, bootstrapped it, and had a very happy ending. It is possible. But we had some unique help including a family business providing our component parts giving us 120 days accounts payable terms. That’s difficult to find out in the wild. Customers are vitally important. Cash is more important. Why? Let’s say you get a huge order out of the starting gate because, of course, your product is the best. How are you going to finance that? What if you have enough money to process the order, but you don’t have enough to cover your overhead expenses (rent, salary, insurance, etc.) while you wait to actually collect the money owed to you? That’s a thing. What you need is a couple of customers to show proof of concept. After that, put together a pitch deck, and go to an investor to raise money. Then you’re off and running. If you can get purchase orders from a reputable company, you can also raise money from a bank. Many banks (or factors) will lend money against purchase orders. When I say raise money, it doesn’t have to be from an investor who will take a percentage of your company. It can be debt from a bank as well. You just have to pay it back. With interest, of course. There are a lot of creative options to raise money. I explain some of them in my Medium post, “Why Cash is King and How to Get More of It.” If you need to know how to construct a good pitch deck, send me your email at: [email protected], and I’ll reply with my two-page outline. My partners and I have raised tens of millions of dollars using it as a template. Originally published in Data Driven Investor.  Photo by Sara Krulwich/The New York Times I don’t remember the exact year, but I remember that it was the beginning of the end of my marriage.
My then husband and I landed tickets to Miss Saigon when it was the show to see on Broadway. The story, while great (a reinterpretation of Madame Butterfly), was eclipsed in my opinion by the set design. For those who might question that, there was an actual helicopter on the stage. I felt like I was in Saigon at the end of the ill-fated Vietnam War, besieged and fighting to get on one of the last helicopters. I sobbed. Was it the play or the marriage? Jury’s still out on that. Regardless, I learned something important. Set design is everything. When said husband and I readied for our first trade show a few months later, I took that revelation to heart. How We Made Our Booth a Must-See for BuyersWe had reserved a booth at the International Toy Fair in the Jacob Javits Center and needed to get attention and orders. We only had four products and two of them were questionable. One was just okay. And one was a winner. The idea was to create an amazing booth that would garner us attention. We didn’t have a lot of money for an advertising budget. So we planned a kick-ass booth. The name of our company was, Maui Toys. We decided to create a, “beach experience” in a ten feet by ten feet area. The floor of the booth was covered in white sand with iridescent glitter mixed throughout. We found pastel, cardboard cut-out palm trees (life-sized) and planted four of them in the sand. I hand painted an ocean sunset mural that hung across the back of the booth. A couple of beach chairs were planted in the sand. The floor was littered with several sea shells and star fish. A beach ball and beach towels sat nearby. In the middle of the booth was a pyrex stand that held a display of our four products. And the coup d’etat was a ten foot long neon sign placed above the booth with our palm tree logo and the name of the company. It was the talk of the show and everyone came to our booth just to see it. Then, of course, they looked at our products while there and put in orders. Our company was off and running. Trade ShowsYou can and should do the same thing. I still think trade shows are one of the best ways to launch a company. It is relatively inexpensive and if you do your research you can usually find a trade show where buyers are known to write orders. There are other advantages:
Do some research and choose the trade show that is right for you. Don’t spend the money for small shows that don’t offer much. It still costs money to secure a booth as well as design, sales materials, creative giveaways, travel, and hotel and food while you’re there. You’ll need a helper or two to set up the booth and work the show. Budget all of that appropriately. Make the most of your investment. Read my article on reverse engineering your dates to make sure you are ready on time: The One Clear Difference Between a Good Businessperson and a Bad Businessperson  Illustration by author on Adobe Express Follow this advice no matter how much you might want to avoid it.
None of us likes to do tasks that we find draining. You must do it, grasshopper. Here it is: Read the contracts that your attorney writes for you. That’s it! I know you might be thinking, “That’s all? I do that anyway.” Good for you and then you can skip right down to the "likes". For those of you who don’t, I will tell you why this is vital and the most painless way to do it. Why is this vital?You cannot trust your attorney. You just can’t. Attorneys are not business people. Not to offend anyone, but most attorneys don’t understand business that well, or your business, or just what you want for your business. They know the law. Good! Because you probably don’t. But you must go through your contracts to make sure they get all your business points down correctly. Are you supposed to get 35% of the company or 40%? Are you to be paid 5% or 5.5% on that loan or for that licensing fee? Those are examples of business points. How is it done in the most painless way?I have found that it’s best to do this at the end of the day. Finish all your other day’s work beforehand. No distractions. Print out a copy of the contract or agreement or whatever it is that you’ve hired a lawyer to write for you. Personally, I find that a nice glass of red wine helps, but if you don’t drink wine, try a cup of your favorite herbal tea. Go through your printed copy with a red pen and a highlighter. Read it, highlight mistakes, fill in any blanks, and make notes. Call your attorney the next day and communicate any mistakes. Voila. You’re done. Depending on the length of the contract, it should take a couple hours at the most. It could make the difference between a worthless piece of paper, and something that might save your business. As President Ronald Reagan once said, “Trust but verify.”  “A good hockey player plays where the puck is. A great hockey player plays where the puck is going to be.” ~Wayne Gretkzy My partner played soccer (football) his whole life up until he was in his 40s. He also coached his kids in soccer for many years. He’s European. My partner paraphrased the Wayne Gretzky quote for soccer and continually pressed it on the kids he coached, including his own kids: “Don’t pass the ball to where your teammate is. Pass it to where they’re going to be.” This concept is, of course, made more difficult because any sports game is fluid. You don’t really know where someone is going to be located at a certain point in time. It’s a game. Everyone is running around. And it depends on where the other team’s defenders are, too. Here are the takeaways from this wise analogy:
Because the great Wayne Gretzky also said: “You miss 100% of the shots you don’t take.”
Ah, sports is always such a great metaphor for business and life in general. This is what you must do when planning to create and make a product or launch a service. You don’t make a product based on where everyone is right now. You make a product for where they’re going to be. Same goes for a service if that’s what you are going to offer. Don’t develop an idea or service or educational course for where the world is, where your potential client is. Develop it for where they should be. Look at your competition and create something that is different and better than what is already out there. Observe where the empty spots are. You also plan a release strategy based on where you think the market will be a year, or even a few years, from now. There’s a certain predictive, even futuristic element to this theory. How does one know what is going to happen in the future? Well, we don’t. But we can make educated guesses based on research and brainstorming with our team. I write about this more in a past post: The Wisdom of Your Crowd. Thanks for reading! And feel free to reach out with any questions.  Photo by krakenimages on Unsplash It could save your company. |
Stories and snippets of wisdom from Cynthia Wylie and Dennis Kamoen. Your comments are appreciated.
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