Jim Blasingame

Business futurist, award-winning author, speaker and columnist

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Business Financial Mysteries Revealed, Part I

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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 have employees, the balance are 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. [Continue Reading]

“Customers from Hell” and the #1 Business Fundamental

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“This is for one of those customers from hell.”

That’s what a small business owner said to me during one of my road trips across the country to check on how things are going out on Main Street.

“Ann” was responding to my query about her business. Her full answer was closer to, “Business has been good. But now I’ve got to spend most of the day dealing with this customer from hell.”

Turns out, what caused this customer’s alleged domicile to be mentioned is because they required a lot of extra attention – they wanted things the way they wanted them. Like Ann, you might be surprised at my response, which is our next “Business Fundamental.”

“You should never have a customer from hell.” [Continue Reading]

Managing The Three Clocks Of Small Business

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“Time Is On My Side,” is the title of one of the classic rock ’n’ roll songs performed by Mick Jagger and the legendary English band, The Rolling Stones.  

This bold statement works in a song, but for small businesses – not so much. The reason is because of the complicated dynamic between our most limited resource, time, and three of our most important business factors, expenses, sales, and cash.

In the marketplace, there are actually three different clocks at work that every business uses: one for operating expenses, one for sales, and one for cash. Let’s take a look at how these three clocks impact your small business.

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Did you make a sale, or did you make a loan you can’t afford?

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Congratulations on making that nice sale. You’ve worked hard to get customers to come and buy your stuff. Success feels good, doesn’t it?

Well, sorry about the cold water treatment, but what if I said you can succeed yourself right out of business? Retailers selling to consumers get paid at the point-of-sale. But if you have business customers, they expect an open account relationship where they pay you in 30 days – sometimes. And there’s the rub.

Let’s do some easy, but critical math: When you extend credit to customers, you have to fund virtually the entire amount of the sale until the day you get paid. Everything but net profit, which if you’re lucky is small single digits.

Here’s another way to think of it: The moment you deliver to a customer on credit, you haven’t so much made a sale, as a loan. And any banker will tell you that two out of three things that can happen with a loan are bad: Besides being paid later than agreed, sometimes it isn’t paid at all. For an under-capitalized small business – which is redundant – such possibilities are perilous.

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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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