Business for Geeks 101: Part 7 of N – Cash is King

Yes, you've heard it a thousand times, you've read about it, and you've stopped to think about it, but what does it really mean?

It's simple really: If you don't have cash, your business dies. It may sound harsh, but there's nothing else to it. As long as you still have dollars in your bank account, you still have the ability to maneuver and the ability and time to make rational decisions. Once the cash starts running out, you lose all of this and things start looking bleak.

Most small business books and blogs recommend that you delay paying invoices to keep cash in your account. They recommend that you engage in bartering whenever possible. They recommend that you consult whenever possible just to keep things moving. Each of those – without further clarification – are terrible ideas.

First, paying invoices late… terrible idea in my book. My name and credibility and tied up in CaseySoftware. It's one thing if I fail. While I don't particularly like the idea, I know that it does not reflect on me as a person and failing has been educational in the past. Alternatively, having debts and causing problems for other people… it's not going to happen on my watch. Therefore, I make a point of paying my people – the vast majority of the expenses – first. When we don't get paid as expected, it causes a bump and if enough of those bumps line up, it starts putting other organizations at risk. If you're one of those companies sitting on invoices for 30, 60, or even 90 days, you're part of the problem.

Second, I've written a bit about bartering before and I think it is also a terrible idea unless you get the whole thing in writing and ensure its enforcable. Early last year, I spent an absurd number of hours keeping a dating site afloat under the agreement that the owner would provide graphical design support for dotProject. Well, that was 18 months ago and I'm still waiting… The second time I went about bartering, I got the whole thing in writing. When that person – a good friend of the first interestingly enough – attempted to back out after my end was fulfilled, the mediator stated quite clearly: “you're going to lose, now the question is how much are you going to have to pay?” If you want to barter, do so, but just acknowledge that once you keep your end of the deal, there's unlikely to be any motivation for them to keep theirs.

Finally, consulting to keep the dollars flowing. Yes, consulting with a reasonable billing rate can keep you in a good position. It can keep the dollars flowing and give you some flexibility to take risks in other areas, but just by doing that, you're also taking a huge risk. As I noted in my first idea discussion, you need to have goals and principles in your business. If you don't have those, you have nothing to evaluate against. But here's the problem with consulting… the dollars going into your bank account – although they make you feel good – they have the possibility to distract you from your goals or cause you to put them aside completely. Think of it this way, if you leave a fulltime job making 60k for a consulting job making 85k, how motivated will you be to start or continue with your idea? Sure, the dollars can keep things moving, but they can also stop you.

Alright, so if you've read this far, you're saying “But Keith, you jerk, you've said yourself that you've done these things!? How can I get started if I shouldn't do them too?”

No, that's not quite it. I said that I think each has downsides you have to be aware of. Additionally, I don't think any of them work as a long-term strategy. At some point, you need to evaluate each of the practices against your own values and goals and determine how they fit. Some will, some won't, but you can't just blindly follow people's opinions or practices without stopping to think about them.