The Art of Winging It

The first rule in business is simple: You've gotta have more money coming in than going out. You can have the best product or service -- and everybody can want and need you -- but if you ignore this simple rule you will most certainly fail. To further simplify, I will break it down. The second part is actually the most important -- the "money gong out" part, the expenses.

When my first business was in trouble in the mid-eighties, I sat down with a business counselor. He asked, "What is your burn rate?" After my ‘huh’, he said, "How much money goes out the door every month no matter what comes in?" Here are some of the pitfalls on the expense side:

• Costs are immediate while the income usually comes later.
• The owner's salary should be a fixed expense.
• Consider some "re-do" expense.
• Don't forget the time you spent bidding and getting the job.
• If you don't pay your bills on time, you will never be able to get the credit you need to finance growth.

Once we had that number, we determined how much business activity was necessary to provide that "net" income. Some of the challenges here are as follows:

• A percentage of the income will not be collected. Trust me, you never get it all.
• You don't get the income when you think you will get the income. Get used to hearing "the check is in the mail."
• Only count the chickens in the hen house that you can actually catch.

So, when you get your honest list of money going out and money coming in, do the math and see if you can make it. You can only go so long running in the red, so keep a close watch on the monthly difference. It may seem that everything is going like gangbusters and you are doing great when, in fact, activity has nothing to do with achievement. No matter how many sales or orders on the books or jobs under contract you have, if you don't have more money coming in than going out, well, it is just a matter of time until you burn out. The only way to put out that fire caused by the money you are burning each month is a healthy income stream.

Copyright 2002, D. Thomas Basham

(July 2002)