I first read Gerber’s eMyth years ago and agreed with a lot of his diagnosis of small business as “the biggest personal development challenge of the western world today”.
In January 2022, the book still speaks to a similar set of home truths about SME business that haven’t changed since it was first published in 1985. The technology supporting business may change – but the human side of business evolves more slowly.
Great “Technicians” – from SEO experts to commercial plumbers – are still having “entrepreneurial attacks” and starting a small business. All too often those businesses still struggle to grow because the Technician doesn’t understand the Sales and Management functions that enable growth.
However, after re-reading The eMyth Revisited I felt like something was missing – because since I started my own small business as a Working Capital Strategist, what my customers tell me again and again and again is that:
“I spend all my time waiting for money”
They could be a retail business waiting for customer payments to offset their expenditures on stock, premises and staff.
They could be in the B2B space, providing specialist products and services into big industry and commerce and endlessly waiting for payment from big customers who demand 30 and 60-day credit terms.
Most small business owner-managers spend a lot of their time struggling in the cash trap – and it’s often not because they’re undisciplined or “bad with money”.
So I’m beginning to wonder whether Gerber missed the 4th role. In addition to being a Technician, Operations Manager and Sales Executive, to run a thriving small business it may also be important to think like a CFO, rather than like a bookkeeper.
When you think about it, one of the things that SME business does is provide a distribution centre in the “money supply chain”. They’re always converting value between their suppliers and their customers – either upscaling it or downscaling it.
Gerber’s pie-making Sarah bought the flour for her pie crusts in bulk compared to home cooks – but not at the scale of an industrial bakery.
At FinForBiz, some of our customers deal with global blue chip corporations, others deal with commercial builders. They – and we – are all intermediaries for money moving up and down value chains.
Inherently, the structure of the “money supply chain” means that – for the majority of businesses – there will ALWAYS be timing discrepancies between their incomings and their outgoings. That “cash gap” can handcuff their plans for building their business and achieving their goals if they don’t get strategic.
The cash gap doesn’t exist because they’re bad money managers – it exists because that’s the way the financial “supply chain” works with the commodity we call “money”.
If an SME only uses the financial products and money understanding it’s owners learned about while growing up, running a household and working for a boss, then they’re almost always going to end up in the cash trap. Overdrafts and business credit cards have their place – but depending on your business model and business process, there are other tools that are better suited to escaping the cash trap.
I’m not talking about being a financial expert – I AM talking about developing that “CFO mindset” and learning to think about financial tools, options and structures – not “money”.
You don’t need to understand the internal combustion engine to buy a car – but you do need to understand your business needs, so you don’t buy a ute when you need a semi-trailer (or a cargo bike).
The four key types of financial tools that free business from the cash trap are:
Knowing what they are, their advantages and disadvantages, and which cash trap problems they solve could make a big difference to who’s in the driver’s seat in your business.
Like any other business infrastructure selection, finance isn’t an off-the-shelf, magic wand to solve all your money issues in a single blow. It takes expert advice, the careful selection and tailoring to your needs PLUS readiness to adapt your business processes and disciplines.
But the right finance products can get you out of the cash trap- and that can be the difference between retiring 10 years late onto the basic pension – or having a choice about retiring early because your business is a self-sustaining enterprise.
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