Wouldn't it be nice to know that your business could be
profitable from day one? Many successful companies began with a
purchase order. Since having customers is really what business is
all about, having at least one customer is a good place to
start.
One customer was all it took to get Rainbow Express moving. The
nightly courier route that launched the company allowed the
founding partners to build even more sales during the day. Bart
Snow continued to work the business around his day job, but he
adds, "Within a year, the company reached the point that it
could replace most of my salary, so I left my job."
The difference between a business with no customers and a
business with one customer is night and day. That first customer
serves as far more than a source of income. They are a reference
for prospects and a source of insight into the needs of the market.
For the very early-stage business, one customer can also provide an
important psychological advantage--a paying customer is strong
reassurance that the work has value.
Make a Map
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Mapping out a finance strategy is a vital--and often
overlooked--part of the business plan. It's easy to project
growth in sales and staff, but until those sales are made and paid,
where will the cash come from to buy raw materials, pay salaries
and provide overhead?
This is an important lesson to learn early on. "Cash flow
is always an issue," groans Snow, "unless you've been
able to bank a lot of money or you are in a really high-margin
business."
Since it often takes weeks or months to collect money from
sales, financing a business from only sales revenues is really an
exercise in advance planning. The savvy entrepreneur should know
not only how to pay for today's expenses, but also how to pay
for the next three to six months of overhead.
While Snow believes in the benefits of cash flow planning,
he's quick to point out that "cash flow plans don't
help if your customers aren't paying you. You have to be really
diligent, or people will string you out as long as you let
them." Forecasting and collecting accounts receivable are two
sides of the same coin.
Don't Spend
Beware of success. "People tend to make a little money and
then think they can spend on this and that… but it's a
huge trap," warns Snow. "Buy only what you absolutely
need." That means no lavish spending on swanky offices,
excessive travel and employee perks. There is really no room for
excess of any kind in a young business.
Shep and Ian Murray lived with their parents while selling their
first batch of neckties out of their car. "We put every penny
we had into the highest-quality materials and, later, the best
people we could find," explains Shep. There was precious
little left for extras--even salaries for the pair were not a given
during the first year. But it's this devotion to spending only
on the core business that accounts for the success of the
company's $65 ties today.
Likewise, Snow and his wife operated out of the basement of
their home until the business could well afford a small office.
Using contract labor to match expenses with income was another easy
way to grow the business without adding overhead.
Learn More
You may be cash-strapped, but you can't afford not to market
your business. Try these creative ideas for marketing
on a shoestring.
Originally published in the October 2002 issue of Entrepreneurs Start-Ups magazine
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