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Cash flow and entrepreneurial companies

July 8, 2010

I’ve long been of the view that one cannot teach someone else to be an entrepreneur – I think you are, or you aren’t.  True entrepreneurs “figure things out” and often don’t need much in the way of handouts.  However, I do think that entrepreneurs can be taught to be better at what they do.

Case in point, while I understood what accounts receivables were when I started my second company, I didn’t understand that they needed to be managed.  IE: clients don’t always pay promptly (or at all) unless they are reminded.

It’s been a curiosity of mine that many entrepreneurs seem to think that raising capital (venture or debt) is the holy grail of success in early stage business.  I’ve seen many angel investors and mentors pontificate on this point too.

I disagree.

In Canada there are four primary sources of cash for companies (in order of desirability):

(1) Customers

(2) Debt lenders.

(3) Equity investors.

(4) Government grants, loans and tax refunds.

Businesses can only survive the long term if they have adequate cash from customers.

My advice to early stage entrepreneurs is to candidly assess the amount of time (opportunity cost)  they spend looking for debt, equity and government cash and determine whether that time is better spent finding customers.

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