Don't Be the Bank

Danny has a small business, and the business has grown significantly. He's considering bringing in some investors. Dave warns Danny off that idea.

QUESTION: Danny in Nashville has a small business, and the business has grown significantly. He’s considering bringing in some investors. Dave warns Danny off that idea.

ANSWER: What’s scary to do is go into debt on product that somebody may or may not pay you for on a brand-new widget that you’re rolling off the line. This is fraught with danger. Do you know what Chapter 11 is? That’s what that purchase order is worth.

Dude, I’m serious. You’re going to put your neck on the line and bet your whole family and everything into the future? Bankruptcy on this big order versus you starting small? There is nothing shameful about you being the tortoise. It’s that simple. I want you to do that.

If you can talk them into giving you a deposit up front because they want to do a bigger order, fine. But just say, “Hey, guys. We’re a small operation. We’re brand-new. We want to do this. We just can’t. We don’t have the money.” That’s exactly what I would do. I would not go further in debt. I would not bring in partners. I would not look for angel money. Just be willing to grow slow. There is no harm in that whatsoever. What’ll happen is you’ll be able to get a couple of these people to do deals with you and pay you up front. It’s a big company placing the order. They want this little bitty brand-new startup company in Sparta, Tennessee, to be their bank.

The number-one cause of business failure is cash flow problems, which has to do with accounting and lack of forecasting and planning. You know what the number-two cause of small business failure is? Too much success. The infrastructure and the cash flow and the ability to do customer service, the ability to produce the quantity—whatever it is—our eyes get bigger than our stomachs. We bite off more than we can chew. I’m the same way. I can’t stand it seeing an opportunity in front of me that I missed, but it may be an opportunity for a disaster that you’re missing. If they can’t fund it up front, don’t do it. That’s my opinion. It’s not what you wanted to hear, but that’s exactly how I’ve run this business for 20 years, and it’s worked out really, really good for me.

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