Hey gang – I am the author of the above title and each day I like to hold a virtual book reading. The topic today is liqudity. This is very important!
Have 12 Months’ Cash on Hand
All professionals and small business people, yourself included as an SMB consultant, need starting capital. Think about this. Maybe you’ve witnessed the following scenarios. Perhaps a friend or family member is in some type of commission-based professional capacity and started with a year of cash to initially cover living expenses. Or perhaps you saw a middle-aged, middle-management dude leave his corporate capacity and borrow against his retirement funds to open a hobby shop. Maybe you witnessed the housewife of a dentist start a fabrics store, bankrolled by her husband for the first year of operations. No matter what new business you might jump into, the first year is a total financial bearcat and you need some cash to carry you through!
This area of sufficient start-up capital is so important that I’ll state the obvious again: Starting out with enough money is an essential fact of being in business for commission-based salespeople, small business owners, and SMB consultants alike. When you break out on your own, you need a reserve of cash on which to survive until your business efforts yield sustainable cash flow. In real estate sales career seminars, you’re advised to have a year of cash for living expenses-although new real estate agents are notorious for running up credit card debt, or begging from family and friends, or otherwise borrowing from Peter to pay Paul to survive the first year. This real estate career advice applies equally well to SMB consultants just starting out.
But I can hear some of you asking why you should have one-year’s cash on hand to launch as an SMB consultant. The billing cycle that follows the initial contract, which follows the initial sales cycle, is way out there! Plus I need to preintroduce a concept that I’ll explore more in the Minder section of this book: accounting write-downs. Long story short, you’ll have some billing write-downs in the SMB consulting field. Write-downs are charges against your billing revenues when a client will not pay your consulting invoice. Accounting rules dictate that you write down doubtful accounts receivable balances after a reasonable period of time. Figure 4-1 displays the 12-month initial cash-on-hand cycle for you.
Proof positive the 12-month supply of cash at launch theorem holds true.
Betcha didn’t know that the 12-month rule can even apply to established SMB consulting practices. From the first sales call to the first satisfied invoice (which is cash in hand to you), it’s not uncommon for nearly 12 months to have passed. These stark facts about cash-flow timing are only stronger for the newbie SMB consultant.
Bottom line: Your new SMB consulting practice is a startup. It’s risky and some of you, bless your hearts, might not be around in a year or two. This sobering reality is all the more reason to have sufficient cash to launch! You’ll greatly appreciate having enough money at the ready, let me tell you.
Harry Brelsford, CEO at smb nation www.smbnation.com
Microsoft Small Business Specialist SBSC, MBA, MCSE, MCT, MCP, CNE, CLSE, CNP
PS – did u know I host a technology conference in the New York City area each spring? Save the date for March 6-8, 2009 and watch “voice meet data” in the SMB space!
PPS – my SBS 2008 book will be out in mid-November 2008!
PPPS – my Microsoft Response Point Primer book is here NOW!