A Cash Flow Thought ...or,
Good Money After Bad?

I've been in business for myself since 1985 and still I am not a millionaire.  One of the most important lessons I learned in regular assessment of small business is how to have a little patience every day of my life.

Most small businesses struggle cash flow problems.  It is not that the business itself is not a good business, but that it suffers from poor management of cash flow.  So, that brings me to the core of the problem when I see someone seeking additional outside loans, or funding for potential "pie in the sky" revenue projections, if only the business had "X" amount of money extra in which to promote the business stronger.  Let the baby grow at a healthy pace first.

First and foremost is the stability of the existing business structure.   A bank takes on 20% of an SBA 80% guaranteed small business loan.  That sounds very good for the bank.  However, the real problem is "between the lines" of the loan repayment papers you sign.  You obligated all accounts receiveable, assets, inventory, future income tax refunds, etc. to collateralize that SBA loan upon receipt of initial funding.  SBA requires the bank making the loan to first sell off all possible collateral as funding bank upon loan default.  After the loan is reduced by that liquidation, the bank is stung for 20% of the remaining amount due.  So, when an owner of a small business who further goes on the side and puts the business into a second debt against the original loan, the "other lenders (friends, family, etc.) do not have any collateral to fall back on to save their own butts, in case the business fails.  Another problem is "liquid" versus "real value."  Most collateral is sold for much less than its actual cost at the time of a loan default.  The value was to the business....not to the secondary market.

In addition, when the original SBA loan is funded to a small business entity, the SBA guarantees the loan based on original revenue projections.  It usually takes 3-7 years for a new business to run in the black.  The owner of the business must be willing to train the new baby how to speak for itself, walk on its own, and develop in its maturity timespan.  It is much like asking a two year old to act its age.  ...and when it does, the parent gets impatient and tries to make the baby stop wetting its pants before it is old enough and grown strong enough to hold its bladder.

I caution all new business owners to nurture their small business into a solid, mature state before asking it to start supporting you.  You are its parent and as such must be the one responsible for its training and guidance.  If you are not willing to go through the growing up years, you are setting yourself up for failure from the initial onset.  When a baby is born, its problems are small in size (usually).  As it grows, and matures, so do the size of problems.  A new business owner who knows its business is similar to a mother who knows her child and her child's limitations.  Be a wise parent.  Allow your business to grow at its own pace and develop a strong foundation before building the structure....or it will collapse.  It must have a strong foundation to hold up a mighty structure.

The women in the group have offered several great ideas for making tiny steps before running the cross country race.  Have a little faith in your expertise, the business you are developing, and the future you know can be.  Too many people, today, have watched television/movie dramas that stage a lifetime of story into 30 minutes with the "and they lived happily ever after" and are now caught in the instant pudding message of today's time.  Life and business is not instant pudding or 30 minute dramas.  The real truth is "after the 30 minutes is over.... reality comes into play and one must get on with the business of life itself.

Have fun with your business, take pictures along the way....and look back at the memories and lessons which make you the successful business person of tomorrow.

Deb Nyberg, Webmistress
FoDreams.Com

Date: 
        Thu, 30 Sep 1999 19:44:06 EDT
   From: 
        ECOMAX@aol.com
     To: 
        deb@fodreams.com

Dear deb,

I could not agree more with you, I am from another country, I didn't  get a loan at all. I saved money started small, guarded my finances and build it up  slowly.
To let me and my business mature. 

Thanks Kim Roemen