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Business Master QuickTip - Cash Generation

Cash flow, its generation, its conservation and, overall, its management is the single most important discipline an entrepreneur must learn to be truly successful. And of these, cash generation is the most important. From day one, it is the lifeblood of the business and will and should be at the forefront of, virtually, every decision an entrepreneur makes regarding it.

Now this seems obvious, doesn't it?

Yet, too many entrepreneurs have this notion that the very first thing that they need to do is to raise money. Nope! The first thing they need to do is generate cash, which, typically, means getting customers!

Unfortunately, most entrepreneurs, especially in the early going, spend more time and precious resources trying to raise cash from outside sources, usually prematurely, rather than trying to generate it from potential customers. But you say, I need to raise cash so that I can execute my business plan and grow my business. True, but why not just have a total focus on generating cash any way you can to get the business off the ground and keep it running? That could include raising cash from outside investors, which ultimately will help the business to grow. But at the end of the day, developing and maintaining a "whatever it takes" cash generating focus will serve as the entrepreneur's foundation for future business success.

So, let's say you're just starting out. You have a little seed money from savings or investments, enough to carry you for several months. But you need to get your product concept into reality and get a customer to use (and, hopefully, pay for) it. But, you're short of the necessary resources it would take to complete the product. You have three choices to generate the necessary cash. You can get a second job or consulting gig. You can try to raise money from friends and family (no angel or institutional investor touches you without proof of concept). Or, since hopefully, your product concept has been "bounced off of" several prospective customers, you can partner with one of those customers to provide development dollars in return for ongoing influence in future product enhancements and future product royalties, as an example.

Now there's not much difference in the ultimate probability or timing of success in any of the three. However, with the third, you not only have a product, but you have a customer and have generated cash from that customer. You have a reference (and since they have a vested interest) - a good one. And you are on your way to understanding what's most important about cash flow - cash generation - and a leg up for future capital raising from investors, since you now have proof of concept completed.

Finally, you'll notice I haven't mentioned either cash conservation or cash management, which I said were important parts of cash flow. Well, if you don't generate it, you won't have to worry much about either conserving it or managing it. More about those two in later posts. Go generate it first!

Master Yoda knows these things. His job it is. May success be with you!