Extension Cords, Cash Flow, and Entrepreneurship

The NY Times has a blog called You’re the Boss. It’s an entrepreneurship based blog. What I like about it most is it’s practicality. For instance, anytime you read about what the pitfalls of small businesses and start ups are the list always starts with cash flow. It is the life blood of any company, but especially those with limited credit profiles. But in the entry titled Eleven Easy Ways to Destroy Your Company by Jay Goltz the number one answer is extension cords. Number two is receivables (cash flow). I recommend the entry and the comments too. Here is an excerpt:

1. The lowly extension cord. People get cold feet.They get a space heater. They plug it into a two-pronged extension cord. They forget to unplug it when they leave work. That night, while you are sleeping, your entire business burns down. Your brilliant marketing plan, your three-year projections, all of your records, your new product samples … . You get the idea. This is not something that most business owners think about, but insurance companies know that extension cords and space heaters are major fire hazards. It is good practice not to allow any extension cords in your business that aren’t three-pronged.

2. Bad receivables. Let’s assume that you are using good judgment as to which customers get credit and how much. Even so,it is very easy to get into a business-life-threatening situation because of a big customer that goes broke. Months before the bankruptcy filing, the following statements will be made to you: “I’m not going anywhere. We’ve been short on cash before, and we always come out of it. You have my personal word.” And you will respond: “We’ve been doing business together for 30 years. I’m not worried about it.” Bad things happen to good people. Good and honest intentions do not always result in getting paid. It is very painful and difficult to cut off an old customer, especially when you need the business. But many companies go broke because of bad receivables.

8. Insurance. I asked my insurance broker what the three biggest small-business insurance failings were. His response: 1)understating insurance to value; 2) not having employment-practices insurance; 3) not having business-income replacement coverage to replace lost revenue until the company is up and running again. It isno secret that the insurance companies are in a much bigger hurry to settle a claim when they are paying out money every week to replace that income.

9. The wrong accountant. Many accountants just do tax returns and are not qualified to act as an outside voice and keep an eye on the health of the company. I have seen more than one company fail because the owners didn’t know what they didn’t know.

Working Thoughts 10/28/08
For Some People Climbing the Corporate Ladder is the Goal


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