Cash is King

Here are some great tips on managing cash flow from StartupJournal. Effective cash flow management is the key to survival for almost every small and growing business.
“Forget the accounting-textbook definitions of working capital. For real-world entrepreneurs, it’s the cash that you need to finance your business when your expenses exceed cash coming in the door. It’s managing the ebb and flow of money, the dance between inventory and receivables on sales.”
Amen!

Economy Grows 3.7% in Q3 2004

From the Congressional Joint Economic Committee:
“The Bureau of Economic Analysis (BEA) announced today that the gross domestic product (GDP) grew at a seasonally-adjusted annual rate of 3.7 percent during the 3rd quarter of 2004. Major contributors to growth during the 3rd quarter were consumer spending and business investment. Over the past year, average quarterly growth was nearly 4 percent. The economy has now expanded for 12 consecutive quarters.
Highlights:
* GDP grew at a seasonally-adjusted annual rate of 3.7 percent during the 3rd quarter of 2004. GDP increased by 4.5 percent in the 1st quarter of 2004, and by 3.3 percent in the 2nd quarter of 2004.
* Major contributors to GDP growth in the 3rd quarter were consumer spending, which increased by 4.6 percent, and robust business investment, which increased by 11.7 percent.
* Strong consumer spending was responsible for more than 80 percent of total growth during the 3rd quarter.
* Business investment has now increased for 6 consecutive quarters.
* Despite rising oil prices, inflationary pressures remained relatively low. The personal consumption expenditures deflator – the Federal Reserve’s preferred measure of inflation – increased at an annual rate of 1.1 percent during the 3rd quarter.”
q3 gdp.jpg
The full report can be seen here.

Check 21….Set Hut…Hut, Hut

Check 21. Sounds like the beginning of a long-count on third down by Brett Favre. Instead, it is a new law that went into effect yesterday that may cause severe heartburn for small business folks for the next few months. I first posted about Check 21 last summer.
The initial reports about this new law focused on that fact that by speeding up check processing, it would be the end of “float” as we have known it. As NFIB reports:
“Under the law, banks can now transmit electronic images of a check rather than wait for the original paper checks to make their way through the banking system. As a result, float times — which gave business owners and consumers a day or two to ensure that funds were available in their accounts to cover checks — are gone.”
Cash flow in this country was effectively sped up by few days yesterday as Check 21 went into effect. Given its timing right before the end of the month, it could catch many small businesses by surprise over the next couple of weeks, as the time just before and just after the beginning of each month can be a time of creative cash management for many entrepreneurs. Float can become a way of life (I hope all of you parents of college-age children are paying attention to this new law!!).
Although checks are getting processed at the speed of light, deposits are not, which will only add to the problem for many cash-strapped entrepreneurs (and college juniors).
“Unfortunately, though, banks don’t have to make your funds available any sooner when you deposit checks. ‘Money’s leaving your account faster than before, but it’s probably coming into your account at the same rate if your bank applies a hold. And that’s what creates the new risk,’ said Gail K. Hillebrand, a senior attorney with the Consumers Union.”
However, there is another outcome of this new law that could have an even more far reaching long-term impact on how we engage in transactions. The hassle created by implementing this new law is leading many businesses to just stop accepting paper checks. Signs reading, “We will no longer accept checks beginning 10/28/04,” are popping up on store counters across the country. The end of the paper check may be a lot closer than we all thought.
“Because Check 21 makes use of electronic transactions that occur faster than the old process of physically moving checks from bank to bank, there’s the possibility that mistakes can be made….The law also eliminates the return of original checks. Banks no longer have to hold onto them….Instead, they will issue ‘substitute checks,’ which are paper reproductions of original checks that contain an image of the front and back of the check….However, one of the limitations of substitute checks is that they make it more difficult to detect forgeries and check alterations since there often is no original check to compare with the substitute check.”
A footnote: Having lived for a few years in Minneso-cold I believe that because of Check 21 the economy up there could come to an abrupt stand still! Why? Well, they seem to write checks for everything and anything up there. When we first moved there I was astonished to watch a women write a check for $2 to pay for a beer. And nobody at our table even blinked an eye, as that is the socio-economic norm up there. However, check writing as a way of life in Minneso-cold may have just come to an end….

Classes Could be Full for a While

Anita at Small Business Trends linked to a survey by Capital One and Consumer Action that found that 40% of Americans dream of starting their own business. Interestingly, that is the same percentage of college students (from annual survey by Chronicle of Higher Educations) who say that their desire to start their own business is one of the main reasons they are attending college. This result has been fairly constant for at least the last eight years.
I hope my Dean reads this…its time to hire another professor to teach entrepreneurship with me!

The Importance of Self-Assessment and Self-Reflection

A couple of students in one of my entrepreneurship classes this fall have had surprising outcomes from their foray into this topic. Through the process of self-assessment and self-reflection they realized that entrepreneurship is just not the path they want to take in life after all. And this is good.
I never view my job as being a cheerleader. Certainly I will give them encouragement when appropriate, but my goal is never to create the most entrepreneurs I can. Rather, it is to create the highest number of successful entrepreneurs I can. And if their hearts and heads are not suited for this journey, then it is good that they find out before they start a business. It is surprising how many entrepreneurs don’t think about these issues and end up feeling trapped and unhappy.
Beyond understanding if entrepreneurship is the right path, self-assessment helps entrepreneurs better define the ideal size and scope of the business before it even begins, by integrating their personal financial, family and other personal goals into the mix.
I even find that successful entrepreneurs with multi-million dollar companies benefit from self-assessment and self-reflection. Often they have lost track of their own goals and aspirations as the business takes on a life of its own. Many talk about becoming servants of the business rather than the business serving their needs.
Here are some of the questions that I encourage all potential and all active entrepreneurs to think about from time to time.
What gets you excited, gives you energy, and motivates you to excel?
What do you like to do with your time?
What drains energy from you in your work and in your personal relationships?
How do you measure success in your personal life?
What do you consider success in your business/career?
What are your specific goals for your personal life?
What are your goals for your business/career, including income, wealth, recognition and impact on your community?
What do you want to be doing in one year? In five years? In ten years? At retirement?
I feel very strongly that examining one’s core values is essential in planning a business and consciously developing its culture as it grows. I ask entrepreneurs to list their core personal values that they intend to bring to their business (for example, treating people fairly, giving something back to the community, etc.). Where does each of these core values come from (religious faith, family, etc.)? Why is each of these important to them? How will they put them into active day-to-day?
Here are some more questions that I have folks who are planning to become entrepreneurs reflect on before getting too far into their planning.
What are the major reasons you want to start a business?
How many hours are you willing and able to put into your new venture?
How would you describe your tolerance for uncertainty and risk?
Do you easily trust other people working with you on a common activity? Why or why not?
How much financial risk are you willing to take with your new venture (personal assets, personal debt, etc.)?
Assume you decide not to start your business. A short time later, you see that someone has started the same business and is doing well. How would you feel? Why?
What are the non-financial risks for you in starting a new business?
How do you react to failure?
How do you react in times of personal stress? How do you deal with stress in your life?
How much income do you need with your current lifestyle?
How long could you survive without a paycheck?
How much money do you have available to start your business?
Which of your personal assets would you be willing to borrow against, or sell, to start your business?
Whose support (non-financial) is important for you to have before starting your business (family, spouse, etc.)?

Stay-at-Home Moms as Entrepreneurs

StartupJournal looks at the growing trend of young mothers combining a stay-at-home lifestyle with entrepreneurial endeavors.
“For many women who leave the work force to care for children, motherhood is making invention a necessity. The daily routine of child-care presents such a minefield of little problems that they turn to tinkering, and then market their brainstorms.”
I am seeing this path in more and more of the self-assessments that my students are writing about in my classes. Many are saying that entrepreneurship gives them the freedom to be at home while still pursuing their business aspirations. It will be interesting to see how well these mothers can balance parenting both a new business and young children at the same time.
Anita over at Small Business Trends had more to say about this last week when this article was at the Wall Street Journal’s main site. Check out her post and the comments it produced.

Non-Profits as Entrepreneurial Ventures

Universities across the country, as told in this story in the Chronicle of Higher Education, are beginning to train non-profit managers in business skills, particularly entrepreneurial management skills.
“Around the country, business schools are creating and expanding programs that help nonprofit managers…apply bottom-line business skills to mission-driven projects. Courses in nonprofit management and related fields like social entrepreneurship are booming.”
There are several trends behind the growth in these programs.
“Several factors account for the surge of interest from students. First, turned off by stories of corporate greed, students are eager to find ways to make a contribution to a post-9/11 world. Second, with 1.4 million nonprofit organizations in the United States competing for government and philanthropic funds, charities need skilled fund raisers and administrators. In addition, their leaders are worried that scandals like those at United Way and other charities have shaken public confidence. They want to reaffirm it.”
I am seeing growing interest in our programs here at Belmont among both MBA students and undergraduate business students. Many of these students are also strong advocates that the private sector is the best answer to many of society’s problems, rather than relying on government programs.