I told you in my last Instructor’s Blog post that I’m fascinated with boats … and how perfectly they illustrate our growth (or lack of it) in business. For example, just think about money and sales as the two primary forces that move your business forward…just like the wind moves a sailboat forward.
Just like the wind, both money and sales will have a direct impact on how fast your boat moves, or even whether it moves at all! The more wind in your sail, the faster you can go. The more cash your company has, the faster you can grow. Less cash typically means slower growth. In this missive I’ll discuss how money is like the wind. If life doesn’t “swamp me” maybe next week I’ll focus on sales and how they keep your boat journeying forward.
Almost all businesses experience cash-flow struggles as they grow. When they do, it’s not uncommon for the owners of these businesses to reminisce about the “good old days” when having $10,000 in your checking account meant you were rich! You had payroll covered for the week (sometimes even for the month), you could take your family out to dinner, and you even had a little money left over. Life was sweet! And even when your small business was struggling, a little money went a long way. But as a business gets larger, you can sneeze $10,000 out of your checking account with a single check!
In the early stages, most businesses are able to make money in spite of themselves. They’re based on what Doug Tatum refers to as a “high performance, cheap labor” model. The owner is the “cheap labor”, and since he’ll go to the ends of the earth to do any job, any size, and make his customers happy he also provides the “high performance” in this equation.
This owner-operator business model is similar to the weekend sailor out on his sailboat. It doesn’t take a lot of wind (cash) to keep his boat moving around the lake. If the wind stops blowing for a spell, no problem. The weekend sailor will just float around until it picks up again. Besides, a business “weekend sailor” entrepreneur has always got a paddle in the form of a few charge cards he can use to keep him going.
But the game changes when you’re sailing a racing yacht or a tall-masted ship. You can no longer rely on the cheap (or free) labor of the owner to offsetting lower margins and services. In the world of business, cash is driven by profits, and profits are driven by the prices you charge. In order to earn the profits needed to generate the cash needed to grow, you typically need to change your pricing structures as you move from one boat to a larger one. Too often we underestimate just how much cash we’re going to need as we move up from a sailboat to the yacht and then to a tall ship.
Even worse, we underestimate how much cash we’ll need to keep the business moving forward. Captains of these larger sailing vessels learn very quickly that when the wind stops blowing, your boat stops sailing. It’s dead in the water. Equally, when your company’s out of cash, you’re out of business. Why? Because now your business has grown beyond your ability to rely on your VISA card for cash shortfalls!
To successfully make the leap from boat to bigger boat to an even bigger boat, business owners must also adjust their mindset about acceptable levels of cash in their business. They must gain competence handling larger and larger amounts of cash. Where owners of a small business might have been competent working with numbers that had one comma in them, now they have to become comfortable working with numbers that have two commas. They have to become disciplined about having large balances in their bank accounts and become extremely uncomfortable suffering large balances in their accounts receivables.
Remember, if you as the captain can’t make these adjustments, your business ship may be in for rough sailing…and in extreme cases shipwreck! We’ll talk again about how if you increase sales you can survive and even prosper in turbulent business condition in my next post!