Get More Out of Your Cash

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The more you can squeeze out of your cash, the better off you are. That is true, but only to a point. Your efforts to get more out of your cash must be balanced against the need of the business to produce a quality product or provide a quality service. For instance, you may conclude that by cutting your employees' pay, you can stretch your cash an extra few months. But cutting their pay may make them resentful and less productive, resulting in product defects or inferior service to customers.

Here are some suggestions offered by the entrepreneurs we interviewed about effective ways to stretch your cash in the start-up days:

Watch your overhead. Some entrepreneurs, feeling flush because of the savings, investment, or other start-up funds they have in hand, decide that their business has to "go first class" to present an appearance of success to outsiders. So they go overboard in acquiring store or office space or buying furniture and equipment. Yet it may be possible to achieve the same results at lower cost, as George Kachajian, founder of Silicon Technology Corp. in Oakland, N.J., did in his start-up days. "In the beginning, I would look in the papers for auctions on other businesses that went under. I believe the table we are sitting at here was purchased at an auction of a company that opened world headquarters in November of a given year and went bankrupt in February. Apparently, they didn't have a cash-flow projection."

It's also easy for new companies to be deluded by early initial success and become inattentive to their expenses, says Crate & Barrel's founder Gordon Segal. "You have to be very cost conscious in what you do, even when you start getting initially successful. The expenses start running away with themselves, and soon entrepreneurs discover that their expenses exceed their incomes and suddenly they are in financial difficulty. They just don't control the business. No matter how much initial capital you have, you need to be very careful about how it is spent. You cannot let your expenses exceed your income. You have to create a sense with your vendors and your associates who work with you that this has to be."

Negotiate on price.Most of the successful entrepreneurs we interviewed point out that they had little reluctance to take every opportunity to try to negotiate lower prices. Confides Mo Siegel, founder of Celestial Seasonings: "My biggest secret was always being a good buyer. I am a tough buyer and I am a tough negotiator. If they tell me it cost $3, I don't mind telling a store I only have $2, I am sorry. I don't mind bartering. I don't mind bartering on fixed prices if I am really against the wall. No problem."

Frank Carney, Pizza Hut founder, seconds that approach: "It never hurts to use, 'Boy, I am just starting out. I don't have a lot of money and I can't afford this, but I sure like this.' It is the old negotiating game."

Maintain good relations with your vendors. Vendors from whom you obtain regularly required supplies and services can also be helpful in improving your cash flow. One vendor who will sell to you on 30 days' credit may be more valuable than a competitor who offers lower prices but requires payment on delivery. Similarly, a vendor who will reliably deliver goods on a timely basis can help save your business cash by reducing the amount of inventory you need to maintain on hand.

Here is how Carney explains the dilemma: "You want a certain quality and you want the most competitive price, and you want to be sure you get the service that matches what service you are promising to your customers. It doesn't matter at all if you get a great price and then get service and delivery terms that you cannot deal with. You have to get it to match what your space is for storage, what your capability is financially. It is best to get delivery just in time for production so that you minimize the inventory that you have in your store. It doesn't matter what kind of store it is. In order to do that, you have to have a good relationship with that supplier and you have to pick your suppliers based on what kind of service they can give. You have to study all those factors in order to make the determination."

Be careful about extending credit. Start-up entrepreneurs are particularly vulnerable to unforeseen cash problems stemming from bad credit. Because start-up entrepreneurs are so eager to make those initial sales, little attention is typically given to checking the credit history or capacity of potential customers. Christine Martindale of Esprit Miami stumbled in this area during her first year in business: "I was honest and I expected that customers would pay me. I had a lot of people who didn't pay me the first year. In that year I lost four times my entire investment." In retrospect, she says she would have hired or used the services of a bookkeeper who could have asked potential customers for credit references and/or used the services of a credit agency that keeps tabs on companies' credit histories. Paying such agencies is usually money well spent.

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