"So I asked them to bring over whatever information they had about their sales, costs, and expenses for the past year or so -- in other words, everything they'd taken in, plus their receivables, and everything they'd paid out, plus their payables. I told them we'd sit down after dinner and go over it."
Helene Stone says she was ready to explode by the time they cleared away the dinner dishes. "I came on like gangbusters," she says. "I couldn't wait to attack, because Bobby was really pissing me off. I'd been saying for months that something was wrong, but this man wouldn't listen to me. I knew Norman would listen."
"In reality, she didn't accept that I was coming into the business," says Bobby.
"That's true. I'm thinking maybe Norman will tell him to go out and get a real job."
"And I'm thinking we have a great future in this business," Bobby says. "So I start to tell Norm about all my projections and my marketing plan, and he doesn't want to hear it."
"What he said was, 'Bobby, shut up," says Helene. "Then he looked at me and said, 'What do you have?' I spread out my work and started explaining it. He said, 'I can read. Calm down.' He sits there, writing stuff down, asking us a question now and then, adding up numbers, and going, 'Uh-huh, uh-huh. Very interesting.' Like a doctor. I say, 'Norman, what is it?' He says, 'Here. I'm going to show you that your assistant, Paula, made more money last year than you did."
"Actually, he asked me to read it," says Bobby. "He said, 'Look at this. These were your sales for the year, and these are all your expenses except Paula. You subtract one from the other, and here's what you get. Would you please read that, Bobby?' I said, '$10,000.' Norman says, 'Right, $10,000. OK, now look over here. This is the total you paid Paula. What does that say?' I said, '$15,000.' He said, 'Do you understand what that means?' I said, 'I think it means we lost money.' He said, 'Very good."
"But Norman never told us to fire Paula," says Helene. "He said, 'I think you have some decisions to make.' He said, 'Look. The business appears viable on paper. But you do have to reduce your expenses, and you're also going to have to put some capital into the business. I don't know how much yet, but it will be a substantial portion of your savings. Are you willing to do this?' He's talking to me."
"Because the money would have to come out of her savings account," Bobby says. "The decision was between putting her money into the business or having me go out and get a real job."
"Yeah, and I didn't know at that point. I had a lot of question marks. I was drained. That was all I could take for one night. So we went home and went to bed. The next morning, I woke up and said to him, 'Paula goes.' And he said, 'Yeah, she has to.' And I tell him, 'Go do it. I can't do it.' It was too upsetting. I'm hysterical crying. Because this was just done to him, and now I'm doing it to someone else."
"I felt terrible," says Bobby. "I said, 'Paula, I'm really sorry. It has nothing to do with you or your performance. We just can't afford to have both of us in the business.' She was upset and hurt, but she didn't get angry. I think she knew. She said, 'If you ever need me again, call me."
"She left, and he and I were both hysterical crying," says Helene. "A part of it, I guess, was reality smacking us in the face. Here we are, just the two of us in our basement by ourselves, and now what? I felt like I was in mourning. He went off to clean out his old office. Finally, I said to myself, 'OK. This was a decision. Letting Paula go means you're in it for the long haul.' But I have to say I was going on blind faith. I was very anxious. It was clear we didn't know what we were doing. We just had to hope Norman did."
* * *
STEP 2
Make Sure You Understand What Cash Flow Is and Where It's Going to Come From
"Everybody is scared going into their first business," says Brodsky, "everybody with any sense, that is. That's one reason you need a business plan. It helps to demystify the process. It takes some of the emotion out of the situation.
"The problem is, you can't create a business plan unless you understand cash flow, and people starting their first business seldom do. They confuse cash flow with sales or with having money in the bank. They believe that to be successful, all you have to do is generate sales. In fact, what you need is the right kind of sales. The wrong kind can drive you straight into bankruptcy.
"To avoid that, you have to realize, first, that your capital is limited. I don't care who you are. Nobody starts a business with unlimited capital, not even IBM. So the whole idea is to make sure, number one, that you have enough capital to begin with, and number two, that it will last long enough to determine whether or not the business is viable. By viability, I mean the point at which the business is generating internally the cash it needs to pay its bills. It can survive on its own. A business plan is essentially your best guess as to how you're going to get there.
"Now, understand, when I say business plan, I don't mean anything elaborate. What I'm talking about is a modified, down-and-dirty income statement and cash-flow statement, real simple. I just want a reasonable expectation of sales by month for a year. That's what I asked Bobby to give me. What he came up with was ridiculous. He was way overoptimistic, which is typical. People on their first business venture are always overoptimistic -- at the same time they're scared to death. It's weird, and it's also dangerous, because it leads them to make bad decisions about how to spend their limited capital.
