Jim Blasingame

Business futurist, award-winning author, speaker and columnist

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Cash Flow

The Key To A Successful Post-pandemic Banking Relationship

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One of the most interesting relationships in the Main Street economy is the one between business owners and their banks. It is at once powerful and essential. Let me tell you a short story about where this dynamic has been in order to explain where it’s going.

Unlike our big business cousins, small firms have limited capital sources. Indeed, the lion’s share of our growth funds come from a bank loan, with almost 60% being made by a community bank (ICBA). Yet, since 2008, more than half of small business CEOs have consistently reported not needing to borrow money (NFIB).

A dozen years ago, a kind of perfect storm began for Main Street businesses: the 2007-09 recession was made “Great” by the Wall Street-induced financial collapse, which was followed by our economic lost decade during the Obama administration. In survival response, small businesses tightened their belts and deleveraged on a scale not seen in generations.

This deleveraging phenomenon resulted in small businesses retaining more earnings which, by definition, produces stronger balance sheets and reduces loan demand. And it produced a silver lining we didn’t know we had or needed – until last year.

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The New Regular: Putting Lipstick on the Bankruptcy Pig

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This is the ninth edition of my New Regular series, dedicated to helping small businesses cope with the one-two punch of the coronavirus pandemic and associated economic constraints. Normal was just sighted in a homeless shelter in the north of France.

The subject today is a serious and troublesome one. No amount of lipstick will make the bankruptcy pig pretty. But as we roll into the post-pandemic era, we should improve our understanding of it.

You can be technically bankrupt without being legally bankrupt. At some time in their existence, most businesses will experience an upside-down state of negative net worth, where liabilities exceed assets. It’s likely that such a condition will pass unnoticed, possibly even by the owner, because the business might not be insolvent.

Insolvency is a pre-bankruptcy state of financial distress when near-term payment obligations exceed cash-generating ability. This condition is not only noticed, it’s consuming. If you dig yourself out of insolvency and avoid bankruptcy, that becomes a badge of honor. Yes, your humble correspondent knows something about that.

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The Paycheck Protection Program and your small business

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The coronavirus pandemic has thrust Main Street America into a very challenging and unprecedented economic period.

Most businesses have been negatively impacted and millions are in peril. Every owner is justified in their concern for the next few months.

But it’s important to remember that we’re dealing with a global pandemic like no living person has ever experienced, which has caused an economic crisis, the abruptness of which no living person has ever seen. As I said last week – this isn’t your fault. And once we “flatten the curve” of the coronavirus, there’s every reason to believe the economy will return to the growth footing we knew only a few weeks ago.

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Revealed: Financial Mysteries Four and Five

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This is the last of a three-part series covering what I call The Five Financial Mysteries. The first three Mysteries were about the relationship between cash, accounting, and profit.

In this article, I’ll complete my attempt to help you avoid becoming part of the business failure statistics. If you haven’t seen the first three Mysteries, be sure to look for the previous two articles nearby. Now, buckle up as I reveal Financial Mysteries Four and Five.

Financial Mystery Number Four
You can get squeezed between vendors and customers.

Vendors and customers are the prime entities you deal with financially every day your business is open. Understanding your relationship between these two – literally between, because your business is in the middle – is the key to cash flow management. The way to avoid getting squeezed is by managing your Accounts Receivable (A/R) Days and Accounts Payable (A/P) Days. Warning: This will get a little mathy, but not difficult IF you have current records.

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Revealed: Two more of the Five Financial Mysteries

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This is the second of three articles on how to prevent your firm from becoming part of the increasing mortality statistics of U.S. small businesses. That’s right. The SBA reports that 50% of small businesses fail in the first four years, instead of five years, as they reported 20 years ago.
 
In this series, I’m revealing what I call the Five Financial Mysteries. Actually, they shouldn’t be mysteries at all – they’ve been around for generations. But with this much Main Street carnage – a 20% increase in startup failures – it’s obvious to me that a lot of people haven’t learned what you must be able to do to sustain your business: fundamental financial management.

If you think you’re an excellent financial manager, then you won’t find any mysteries here. But if you think you could use a little help with your financial management, then this series could be just what you need. Don’t worry, we won’t get too mathy.

In the previous column, the First Financial Mystery was revealed: Cash and accounting are not the same things. Today you’ll discover the Second and Third Financial Mysteries.

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Revealed: The First of Five Financial Mysteries

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This is the first article in a three-part series on how to prevent your operation from joining those who are driving the increasing mortality of U.S. small businesses.

One of the pillars of the American Dream is the ability of any citizen to start a business from scratch, build it, own it and pass it along to their heirs. Research indicates that there are more than 25 million of these dreams-come-true in the U.S. Approximately eight million that have employees, the balance is independent contractors, professionals, etc., and together they create half of the U.S. economy. All of that is the good news.

The bad news is that the rate of small business mortality – when the dream turns into a nightmare – which was once 50% in five years, has now increased by 20% in the past 20 years (U.S. Small Business Administration). The reason for this unfortunate trend is associated with Blasingame’s 1st Law of Small Business: It’s easy to start a small business, but it’s not easy to grow one successfully.

The smoking gun that kills most small businesses is the Founder’s ignorance of or disregard for the financial fundamentals of business. And most of this business carnage could be avoided if every Founder understood what I call the Five Financial Mysteries. In this installment, I’ll reveal the first Mystery with the others to follow soon.

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