| "How little you know about the age you live in if you | | | | be taken to correct and possibly save both |
| fancy that honey is sweeter than cash in hand". | | | | businesses. These are real examples and are |
| (Rome - Ovid Fasti Book 1 circa 350 B.C.).And so it is | | | | occurring every day. Anyone in business or thinking |
| some 2350 years later. Too many small business | | | | of starting a business should put the highest priority |
| entrepreneurs seem to fancy the honey. They | | | | on cash. It starts with your personal budget to insure |
| certainly don't understand the importance of cash in | | | | you, as the owner of the business, live within the |
| hand. Recently I completed two cash management | | | | salary or draw the business provides. Next you |
| workshops, one at Houston Community College at | | | | should have a cash flow budget for at least the next |
| Main and Elgin and the other in Wharton for the | | | | 12 months of your business cycle, whether you are |
| Wharton Economic Development Corp.The attendees | | | | starting a business or whether you have been in |
| were about 25% in business and 75% aspiring | | | | business for years. This cash flow budget should |
| entrepreneurs, about 60 in all. What troubled me was | | | | accurately forecast each cash expenditure you plan |
| that very few of the attendees had personal | | | | on making whether it is an operational expenditure or |
| budgets no less annual business budgets. There is not | | | | spending for one time capital items. Coupled with an |
| much hope when people consider cash management | | | | accurate forecast of income (yes you can make |
| so cavalierly. In addition I had cause to work with | | | | reasonably accurate estimates of income if you |
| two failing business recently and in both cases the | | | | carefully define your premises and assumptions), you |
| cause of failure was poor or no cash management. | | | | should not only know how much cash you have, but |
| With the failure rate for small business exceeding | | | | when it will be spent and when it will be received.Too |
| 50%, I would think that cash management would be | | | | many small businesses choose not to do this because |
| a higher priority for those either in business or | | | | they think it is too much trouble or that it takes too |
| thinking about it. In the case of the failing businesses, | | | | much time or that you can't forecast income or |
| one was in business less than a year. The original | | | | expenses accurately, but none of that is true. Failure |
| business plan premised that they would achieve 55% | | | | to accurately forecast cash and lack of attention to |
| of revenue projection the first month, 75% the | | | | cash flow is a leading cause of business failure. You |
| second month, 95% the 4th month and 97% | | | | have heard it here before, "When you're out of cash, |
| thereafter, truly impossible attainments. After 10 | | | | you're out of business" and it has never been more |
| months they are at 70% of projections and are in | | | | true than today. Listen to Ovid and know your cash |
| dire financial straits. Why? They had negative cash | | | | in hand.June '02"Ed" McMahon's career includes the |
| flows from the beginning (about $5000 to $ 6,000 | | | | small business and corporate world. With degrees |
| per month) but until they defaulted on the bank loan | | | | from Villanova Univ. an MBA from the City University |
| they didn't seem to take any corrective actions. | | | | of New York and completed postgraduate work at |
| Their start up cash did not take into consideration | | | | the Stanford University, he is the author of the |
| that the start up revenues might be less than | | | | book" UnderstandingSmallBusiness( |
| premised and no cash was provided to cover this. | | | | Ed has extensive small business experience. He has |
| Yet this appears to be a good business that may die | | | | counseled several hundred small business prospects in |
| before it has a chance to realize it's potential. Can this | | | | the principles of small business. |
| business be saved? Not without an infusion of | | | | He drafted the FTC disclosure statement for a |
| cash.The other business is an independent car | | | | major convenience store chain currently operating. |
| dealership that leases new cars and buy and sells | | | | He has held senior posts as executive vice president |
| recent model hi-line used cars. This is a case where | | | | of a mid-size oil company, headed up the polymer |
| large sums of money are involved in buying, | | | | division of a major chemical company and was taught |
| floor-planning and purchasing autos for lease and sale. | | | | "UNDERSTANDING SMALL BUSINESS" workshops |
| The huge cash flow, for the most part, belongs to | | | | employed as an officer of a major consulting |
| financing facilities, either banks or investors, and must | | | | company.Ed has taught Small Business workshops at |
| be managed with great care. In both cases a rigid | | | | the business college level, and for the past 11 years. |
| cash management system would have eliminated the | | | | For 6 years his monthly column on small business has |
| problem or provided early warning to enable steps to | | | | been published in a regional business journal. |