Watch the Cash
Businesses go broke for one reason: they run out of cash. Mike explains the best piece of advice he ever received from a mentor: ‘Watch the cash, laddie”.
Mike once asked a mentor, a businessman of huge experience, for the one piece of advice above all other that he would give a small business. He was expecting something like; ‘Stay focused’ or ‘Delight the customer’ or ‘Have an ongoing strategy-led management paradigm empowerment scenario’. The actual reply was, ‘Watch the cash.’
We don’t want to trump professional accountants by telling them tips and tricks for doing this. We do want to point up what cash-consciousness should mean to how the ‘Beermat’ business looks and feels.
In our model, the entrepreneur surrounds him- or herself with four ‘cornerstones’, experts in sales, finance, innovation and delivery. Many start-up teams we meet are lopsided, with too many technicians and no sales – and someone quietly doing the books in the corner. This ‘background bookkeeping’ is too passive a role. The money specialist should be at the heart of the team. They don’t have to be full time from day one – at The Instruction Set our finance cornerstone was the last of the founding team to join full time – but from the very start he was at the centre of decision making.
Finance people who do get to the centre of things soon start to bemoan how little feel the rest of the team has for money. As sales people, we despise them for this – but they are, of course, completely right.
Technical people, especially innovators, should not be thinking pounds and pence. Delivery specialists should be, but often aren’t. Entrepreneurs should be, but hardly ever are. Many want to spend money like water on ‘building the brand’. The only real way to build a brand is to deliver excellent products or services to customers time after time. Other ways, usually suggested by marketing agencies, are more suited to cash-rich, established companies, who have already established basic customer credibility. Okay, if you can get your branding on National Tiddlywinks Fortnight for free, go for it. But don’t fork out cash for the privilege.
The simplest way round these problems is to have the entrepreneur and the finance cornerstone sign all cheques. This will lead to arguments, but also to solvency.
Beyond that, anything that can be done to teach one part of the business about the realities of another is good. Training days should bring people from different departments together, not have them competing against each other. Short ‘internal outplacements’, so the technician gets to see quite how short of cash the business can get, are of huge value too.
Sales people who do acquire an understanding of financial issues can be key fighters in the war against cash haemorrhage. When negotiating deals, payment terms should be near the top of their consideration, but often aren’t: many deals that present opportunities for cash preservation are wasted in exciting negotiation about irrelevancies. They might moderate their expenses claims a bit, too.
So, you’re as cash-conscious as the Treasury on Budget day. Well done!
Don’t take it too far, and fall into the trap of making false economies. Customers hanging on phone lines for ages to get support; salespeople handing out crummy business cards (or no business cards at all)… There is always a fine line to be drawn. The best way to draw it is to make the people spending the money have to convince a sceptical financial cornerstone that the expenditure really is necessary.
One area where economies are almost always false is people. Bright motivated individuals will not come and work for you for peanuts. Pay a little over the going rate, and monitor their progress carefully to make sure they are delivering value for that payment. Events that boost morale and keep that tribal feel in the business are worth spending money on, too. That tab at the pub where you go every Friday – keep it running, even though the finance cornerstone, who’s a two-Perrier-a-night man, objects every month.
We said last time that sales were half the key to funding from revenue. This is the other half of that key: making sure that revenue, once in, stays in the business and flows round it, only leaving if it absolutely has to.