By Mindy Barker, CPA, President, Mindy Barker & Associates
Executives who have successfully moved up in the ranks of large corporations frequently find themselves evaluating if they should become an entrepreneur by starting up their own business. The grass always looks greener on the other side. You would have the ability to hire who you want, use the software you want, implement change and save the world, right?
These thoughts often occur when HR has informed you that you cannot fire an underperforming employee for fear of a lawsuit; or you just left the third meeting to discuss a subject where no decision has been made; or your request to add a new vendor is held up in purchasing for 30 days; or you feel certain the direction the CEO is taking the company will lead to ultimate ruin – or all of the above.
As you begin your journey to start the business, it’s not long before the elation that you have the freedom to make your own decisions is quickly replaced with the realization that you also have to do everything!
The execution of a start up is a completely different dynamic than success in the corporate world. In my experience, I have seen CEOs and entrepreneurs fall into the trap of thinking some tasks just happen like magic, the way they did in a large company. I have to admit, sometimes I fall into that trap.
- Who do you turn to when your smartphone isn’t working? You can no longer turn to your administrative assistant to get it fixed – there is no administrative assistant or IT department!
- Who do you point the finger at when a vendor calls about your account being past due? You start to email the Accounts Payable department to ask them the status of the bill and realize you do not have an accounts payable department.
- Then you realize that the bill hasn’t been paid because the cash in the bank is low. Why? Because receivables have not been collected and there is no one to blame but yourself. The lightbulb pops up over your head – all the process and controls that drove you crazy in the corporate world actually did get the money collected and flowed through the bank accounts to automatically pay your payroll check. As an entrepreneur you have to choose between completing a project for a paying client or collecting money from a past client.
- You are served a suit from a former employee that you fired one day when you got upset with their performance. The suit states you promised them stock in the company and they did not receive it, causing them to feel discriminated against. You also learn they are working for your competitor, they left with a head full of your intellectual property, and they did not sign a non-compete.
Suddenly we miss the bureaucratic, corporate crazy people who wanted us to follow rules and who we felt constantly prevented us from making good decisions. Great entrepreneurs and founders have learn that razor sharp focus is required to manage yourself and your expectations. It takes a lot of emotional intelligence and self-awareness.
The lesson learned: You either have to stop doing what you are passionate about long enough to do the boring tasks, or hire and manage someone you trust to do those tasks.
Cash flow is one of the most important of those tasks. Cash is King isn’t just a cliché – your startup will not survive very long without it. The steps required to keep cash in the bank are many and it can be exhausting to decide which ones to devote your time to each day. The fundamental fact is that you must have a product to sell and keep that product fresh so the customers will want to buy it. Once you have interested customers ready to purchase the product, you have to get the product in their hands and begin to bill them. Startups that do not have a tight process to get clients on boarded will lose the clients. By doing a monthly review of this process during the startup stage of a business, you have an opportunity to find areas that need to be tightened up so that (a) customer gets the product quicker, which leads to (b) you can get paid.
Billing customers on an ongoing basis and collecting from those who let payment slide is the only way to keep the cash flowing. Use collections calls as an opportunity to service your customer by discussing their experience with product or service you delivered, and where you can do better, in addition to requesting prompt payment.
The message to corporate professionals who desire to be entrepreneurs is this: Honestly evaluate your personal strengths and weaknesses as you plan the infrastructure of your new business. Venture capital and private equity professionals will tell you they would rather have a great management team and a mediocre idea over an awesome idea and a mediocre management team. When you start up an entrepreneurial company – you may think the idea is unique and a differentiator that will disrupt the target market even more than Uber. You could be 100% correct and still fail if you do not realistically manage yourself and build the infrastructure correctly to keep enough cash in the bank to sustain the business.