Lack Of Adequate Capital Will Leave You Spinning Your Wheels And Getting Nowhere

Welcome to the club–and it’s a huge one with many, many members. If this describes you, it’s time to make a change:

You have no retained earnings, no budgets, and are fiercely fighting to collect receivables and then immediately using it to cover payroll, sometimes net, not even paying the 941 payroll taxes. There’s not enough cash for inventory or advertising, no pay for yourself or to cash for debt reduction, etc. Yet with perseverance, blinding tenacity and complete dedication, you fight the battle week after week, desperately trying to build momentum, build revenues, and retain profits to reinvest in growth and development. Sound familiar? You bet. This describes many an entrepreneur.

Here is the bad news: this plan will not work. Today’s overhead requirements are simply too much to sell your way to success. Working hard, sacrificing yourself, paying late or not at all, believing that sales will mystically increase and you will build revenues and profit and work your way to liquidity, supporting growth and development… it’s a dream that is unlikely to come true. The cost of business is far too expensive and retained earnings out of today’s sales is not a viable alternative plan to grow your company. Unfortunately, too many entrepreneurs believe that hard work and a great product is all one needs, but it just ain’t so.

A new company requires cash and a plan based on the availability of cash. Then, that plan needs to be followed–none other but the one based on the cash you have to invest. Make the plan fit the cash you have, or you will spend it all and not achieve your goals and with nothing left, it’s all over.

My simple advice, which unfortunately is seldom taken, is to first raise capital then create a plan to utilize the capital effectively. Design your roll-out and establish your cash flow based on your available cash and the plan you made. That’s the formula. Not raising adequate cash or implementing a plan that requires more cash than you have available and believing you can build on sales revenue is folly. It will not work. Do not waste the time or effort to squander the cash that you do not have available, it will not work. Hold your investment, create a plan based on a specific requirement of cash and then go raise the money you need. If you fail to raise adequate cash, reduce the scope of your plan. If the cash you have is inadequate to implement the plan you want and you are reluctant to reduce your objectives, then do not do it at all. There is no in-between, not in today’s world. The “sweat equity” plan of working harder and harder, making self-sacrifice and believing in the future will not yield a successful start-up without adequate cash to fuel the engine.

Unfortunately, attracting cash is a full-time job and must be dealt with in that manner. If it’s a bank loan you want, you need adequate collateral, a reasonable borrowing record, good credit, a viable business plan and probably, a co-signer. If it’s a friend or family member you’re borrowing from, treat the deal with respect and provide a note and a business plan, a reasonable expectation as to how long it will take to return the money with interest, and make the payments. Make the deal work. If it is professional investment money you want, well, that’s a very difficult and demanding mission and the subject of another article.

Raise the cash before you start your new business and implement a business plan that can be accomplished with the cash you have to invest.