5 ways for startups to win the cash flow game.

When you set out to start a new business people give you lots of encouragement, advice, warnings and worried looks. Even so, you don’t really know what lies ahead. You wonder what will be worse than expected, what will be easier than expected and what to expect when you are expecting (unless you already have that baby book).

Cash Money

A topic that everyone warned me about when I started my advertising and idea agency, The Weaponry, was cash flow. The basic issue is that you get paid for your work, and you have to pay bills, like salaries, rent and insurance. The problem is that you don’t always have an equal amount of money coming in as you have going out. Which means that you must have enough cash on hand to cover slow payments, slow months of work, or larger-than-usual expenses.

What I’ve learned

Cash flow challenges aren’t necessarily a result of a customer being delinquent in paying invoices. The challenges can simply be a matter of timing. Your projects, or deals, may take longer to complete, so it takes longer to bill, and thus longer to get paid. If you are delayed in sending out your invoices, that can funk up your cash flow too.

Avoid At All Costs

But regardless of the reason, running out of cash on hand is a common cause of death for businesses of all sizes. It is a lot like humans running out of oxygen, or blood. Which I’ve never done. But I know some people who have, and they wanted me to tell you to avoid it at all costs.

If you are thinking about starting a business, or already have a business and could use some advice, here are a few tips to keep the cash flowing and your business going.

5 Cash Flow Tips

Don’t quit your job until you absolutely have to.  A salaried job helps the cash flow in your startup in two ways. 1. It ensures that cash keeps coming into your world. 2. It decreases or eliminates the need to draw a salary from the business in order to pay yourself. This enables cash to build in your business. Like water behind a dam baby!

Start with more cash on hand than you think you need. Don’t start a business without a reserve. Inevitably you will need it. And if you can’t float an expense because you don’t have the cash around, you clients, suppliers, partners or employees will question your business-hood. And you don’t want your business-hood questioned.

Send your invoices as soon as the work is complete. Entrepreneurs have a lot of demand on their time. So it can be easy to let your invoicing slide while putting out fires and keeping plates spinning. But you have to keep your invoices flowing if you want cash to flow into your business. A good bookkeeper, aka God’s Gift To Entrepreneurs, and a repeatable invoicing process can help ensure that you don’t fall behind on this process.

Delay adding salaried employees until you have a 3-month runway.  We began The Weaponry with a freelance workforce. I wanted to be able to see 3 months of sustainable work ahead in each discipline before I committed to hiring a full-time, salaried employees for that role. The 3-month rule has been a very good guide for us. For other businesses the timing may vary.  Regardless, develop your own rule of thumb, and enforce it.

Keep 3 months worth of salary in reserve at all times. You never know when the demand for your product or service will go dormant. It doesn’t mean it won’t come back. But you have to be able to weather the winter in order to be around when the demand springs up again. Having the cash reserve on hand is like a squirrel storing nuts. A three-month reserve is good. A six-month reserve is better. A billion-month reserve is best.

Key Takeaway

Starting your own business is extremely rewarding. But to keep the rewards coming, you have to keep the cash flowing. It is important to understand that cash flow isn’t just a part of the entrepreneurial game. It is the game itself.

*To learn more of what I have learned through my entrepreneurial journey, please consider subscribing to this blog.

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I was warned this is the worst part of entrepreneurship.

In the spring of 2016 I left my job as EVP, Executive Creative Director of a large advertising agency. It was owned by a publicly held advertising agency holding company that employed 80,000 people in over 100 countries. One of the great benefits of working for a company that size was the benefits themselves. Because when you have that many people in your organization, you have Bezos-level buying clout.

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More People = More Benefit Buying Power 

On My Own.

I love a good adventure. So I left the cushy benefits behind and started my own advertising and idea agency called The Weaponry. I love what we have built. The Weaponry is quick and nimble. Strategic and creative. It is a really fun place to work and offers a great culture of collaboration. We have a lot going for us. But one thing we do not have is benefit-buying clout.

The Hard Part

When I launched The Weaponry I asked a lot of questions of my entrepreneurial network about a broad range of subjects. In return I got a lot of great advice. But when it came to insurance I got absolutely nothing. Unless those crickets I heard were trying to tell me something (chirp chirp… run while you can… chirp chirp).

I could tell by the lack of insights that insurance was the toughest nut for entrepreneurs to crack. Those who did comment said things like, ‘Yeah, that’s hard. I don’t know what to tell you.’ And, ‘It Sucks.’ And, ‘I would love to help you, but I would rather set the world record for most paper cuts received over a 24-hour period than talk about health insurance.’

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We must protect this house (with health and dental insurance)!

Me vs Goliath       

However, I am very proud to say that as of January 1st, 2018, The Weaponry offers insurance benefits. I wanted to share my experience with anyone thinking of starting their own business, or wondering how Obamacare impacts a small business and its ability to grow and compete.

Starting The Search

Over the second half of last year I began planning our employee benefits for 2018. I wanted to offer health and dental insurance. But I also considered a couple of other benefits, including life insurance for full-time employees. But as with so many other aspects of this startup adventure, I decided to simplify to make sure we completed the critical mission.

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I felt like this in the beginning. Only without the suit and itchy scalp.

Research

I began with research. I learned right away that you need at least two non-related employees in your business to be able to offer insurance as an employer. We qualified. I found my way to the health insurance marketplace and started poking around and modeling various products and prices. But in a vacuum it was pretty hard to evaluate what was good, what was necessary, and what was not. From this initial poking I learned my first lesson:

Key Insight:  You will not feel empowered to make a good health insurance purchasing decision if you try to do it on your own.

Broker

My business finance advisor encouraged me to talk to an insurance broker, and preferably more than one. He encouraged me to have them model a variety of options so that I could get a feel for the landscape available to me. By talking to more than one broker, he said, you can compare and contrast styles to know that you are getting the right option for you. This was all good advice. But I still didn’t know how to find a reputable broker, let alone multiple brokers.

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This photo is merely a re-enactment. Although we did sit at a desk and look at papers like this, nobody wore a tie. And I didn’t wear a bracelet like the dude in blue.

My Wife To The Rescue

My wife Dawn is a smart woman, and an important part of The Weaponry brain trust. She was the one that finally got us moving in a positive direction on health insurance. How? She talked to our neighbor Sally.

Sally’s husband, Bruce is the President at EBSO,  a third party administrator (TPA) benefits solutions company. However, because of our size and our specific needs EBSO couldn’t help us, yet. But Sally said that Bruce frequently partners with Jon Rauser at The Rauser Agency for clients of our size. Dawn got Jon’s contact info. And within a few days Dawn and I  were sitting in Jon’s office.

Key Insight: A good wife is the best business asset in the world. This may also be true of good husbands, but I’ve never had one of those.

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Before signing anything that may be photographed make sure to get a manicure.

The Rauser Agency

Dawn and I met with Jon, and it couldn’t have gone much smoother. He started by offering us a range of three or four different insurance providers. Based on our preference, and the providers prevalence in our healthcare market, we quickly narrowed in on one health insurance provider. Then it was a matter of comparing deductibles to get to the final premium options. We simply had to share the ages and family status of our employees. With that we were able to see projected costs, broken down by employee.

Once we provided the names and ages of our employees who would be opting in for our insurance we had to sign a couple of forms to initiate coverage. We also needed forms signed by the full-time employees who were opting out, acknowledging that they had been offered coverage. Next, we had to decide how much of the premium we would pay for our employees. Then we had to send in a check for the first month’s premium.

Then we were done. Seriously. 

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We signed documents. But I never saw a stethoscope.

We Did It!

We had an employer health insurance plan! We have dental insurance too, which was easy to get. We were all grown up! And we were becoming an even more attractive place for smart creative people to work! We had climbed the most daunting mountain on the Entrepreneurial Range. And we planted The Weaponry’s flag at its peak.

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Apparently when someone took a closer look at Obamacare a line came shooting out of a piggy bank’s right nostril.

Obamacare

Why was the process so easy? Obamacare. I should insert here that I am a staunchly independent voter. I grew up in Vermont where independent thinking flows like maple syrup. I think the two parties are antiquated and don’t allow for my complex vision of the world. But Obamacare made it really easy for this startup to insure our employees. There are no pre-existing conditions. We didn’t need medical exams. We didn’t need to take a lie detector test. I didn’t have to tell anyone that my Great-Great Uncle Nels choked on a peach pit when he was eight years old. (RIP Little Uncle Nellie…)

Is Obamacare perfect? No. It has driven insurance costs up by 30%. But you know what? My baseline is today. So I simply look at the price today and ask, ‘Can we afford to pay this?’ And the answer is yes.

I can’t change the costs. But what should it really cost? I have no idea. All I know is that we were able to get it fairly easily, and all we had to do was pay for it. Our premiums are not much more expensive than the COBRA prices I had been paying since I started The Weaponry.

Conclusion. 

I may hate Obamacare in the future. And I certainly don’t want to ever pay more than I have to. But today I am happy to have easy access to health insurance for my team. I want to make sure they are protected. So as you follow the political fight over Obamacare, know that this independent voter, who owns a small business said it was easy to protect his team because of Obamacare. And the small price to pay is simply a larger price to pay. And today, we’ll take it.

*If you know someone thinking of starting their own business that could benefit from this story, please share it with them. If you would like to learn more from my entrepreneurial journey consider subscribing to this blog.  If you have more specific questions about my health insurance experience please contact me directly. I am happy to share what I know.