Jim Blasingame

Business futurist, award-winning author, speaker and columnist

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Cash Flow

What your bankability says about your business’s sustainability

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Not that long ago, there was a lot of noise and some clarity about the concept of crowdfunding, which is using technology to aggregate the funds of donors/lenders/investors for a specific recipient/business.

During that period, I tried to be part of the clarity by writing several articles about the three different kinds of crowdfunding, which are: contribution fundraising, business lending and investment acquisition. Today I want to revisit the lending model, with some new information.

Crowdfunding lending is like the traditional kind in that a request for funds comes with the promise of repayment with interest over a specific term. Proceeds for a bank loan comes from depositors; with crowdfunding, the cash comes from investors. But unlike the bank loan, crowdfunding lending is conducted almost exclusively online. Individuals use crowdfunding loans, but our focus here is for business borrowing.

It’s important to report that the term crowdfunding is now more widely referred to as FinTech, because the interface process, from borrower introduction and debt service, to return of capital for investors is conducted on a digital platform. At the heart of the purpose of this article is that regardless of the funding source – crowdfunding or traditional – interest and terms on small business loans are always higher and tighter than for any other business sector. Almost by definition, a small business loan is a high-risk decision, for two primary reasons:

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Personal service businesses: Think prices, not wages

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Millions of small businesses sell personal services like consulting, website development, or janitorial services, instead of something tangible like a computer or a kumquat.

Unfortunately, pricing a service is not as intuitive as a tangible product. Consequently, service businesses too often don’t charge enough to sustain themselves profitably because of how they think about what they sell to customers.

Don’t make the professionally fatal mistake of comparing what you charge customers to deliver your product — a service — to how much you would expect to make per hour as an employee. Doing so, to paraphrase Mark Twain, is like comparing lightning to a lightning bug. You must think like a business, not an employee. You have to think pricing, not wages. Here’s why:

1. You’re a business now, which means you offer customers a price list, like you would see on a wholesale catalog or a restaurant menu, not a wage list. And you collect revenue, which is what businesses produce to create the gross profit that pays expenses, including the salaries, taxes and benefits of employees — and owners.

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Are you prepared for the inevitable business disruption?

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This week marks an ignominious anniversary. On August 13, 2003, a single outage in the electric grid cascaded across eight northeastern states, putting 55 million people in the dark for days, and thousands of businesses out of business. The Great Blackout of ’03 was a catastrophic reminder that we’re all one nosy squirrel in a transformer away from an instantaneous, put-you-out-of-business event.

Fifteen years later, the evidence isn’t in favor of less exposure for the next 15. Consider this report from CNBC: “The FBI warned Russian computer hackers had compromised hundreds of thousands of home and office routers.” And this one from the Department of Homeland Security: “Russian government cyber actors have been targeting U.S. critical infrastructure sectors, including energy, nuclear and commercial facilities, since at least March 2016.”

In 2003, most businesses surveyed reported they weren’t unaware of a potential business disruption, but incredibly, they also admitted they weren’t prepared for one. Thankfully, that response is different these days, as one of our recent online polls indicated.

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How to get success to come and play in your backyard

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This is a “How to get your business off to a good start in the New Year” column, without any resolutions. You’re welcome.

It’s about fundamentals that have served businesses since proto-market was born, when Og dropped his club and suggested to Gog that they do business instead of killing each other for what they wanted. If you’ll find a way to incorporate these ten fundamentals into your daily/weekly/monthly management practices this year you’ll have more fun because success will come and play in your backyard. If you don’t, well, you know.

1. You must produce and manage with regular and accurate financial statements: profit and loss (a/k/a P&L, a/k/ an operating statement) and balance sheet. In business, you can’t get where you want to go if you don’t know where you’ve been. 

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Managing capital is not the same as managing cash

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There are many tasks every small business owner must handle personally, but none is more CEO-specific than allocation of capital. Because the only thing more precious to a small business than capital is time. 

Cash management is also a CEO-critical task, but operating cash is not capital. Cash is for expenses and is measured daily, weekly, and monthly. Capital is for investment and, as such, is measured in years, possibly even generations.

Below are three classic capital expenditure categories.

1.  Replacement and upgrade

This is not repair – that’s an expense funded by operating cash flow. Replacement/upgrade is a bigger commitment, most often caused when repair is no longer an option, or by obsolescence.

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