Profits are princely but Cash is KING!

One thing you need to really keep in mind is that when you start your business, you need to get rid of the mindset of getting investors or borrowing money. Sure those credit sources have their place when you have hard assets like real-estate. If you are asking someone to lend you money on IP you might be in for a little surprise.

I remember a professor at SMU once explaining to me what Intellectual Property was. He pulled out a balloon in his pocket and blew it up. He looked at me and said: “This is my Intellectual Property”. I replied:”The balloon?” He said: “No, the balloon is the vehicle that holds my IP. The air inside is mine.” The question is, how do you prove it? How do you tell someone that your hot air came from you?

That being said, its hard to get an investor to invest their hard earned dollars in your hot air concept. The best way is skin in the game as I mentioned before. In this financial climate the rules are changing daily and if you are not in tune with them, you will be like the millions without jobs waiting in the soup lines.

The key is doing something and not sitting there. I titled this post “Profits are princely but Cash is King!”. The reason is because you can prove that a business works on a cash basis. When you get to the point were the obvious answer is growing the business with more capital then you go down that road at a later date. Right now, its going to be very hard for people to lend money and its going to be increasingly difficult to borrow money.

We will see a growth in private lenders. Call them loan sharks whatever you want, I see them all over my town in Dallas. All things considered, Dallas is a pretty wealthy town. After all we are in a self-sustaining economy. That does not mean that we cannot fall just like the rest of the economy.

I remember the days after September 11th 2001. I was like everyone else, completely glued to the television set because it was all so new to me. I remember thinking that I was watching a movie, it could not be real. I think today we are on the cusp of something very big. I think the levels of greed that many people have enjoyed for a good long time are finally catching up with them. The problem is that we all get to feel the pain they do.

I have polled a fair number of people and I would say that the average person that i talked to have an average of $30,000 in unsecured debt. This is not too bad considering that there are folks with far worse out there. (Some of which have over $200,000 and over.) This is exactly what is happening with these big institutions. They are over leveraged and they are now collapsing. Guess what, your next! The only difference is the government is not going to bail you out. (I say that then who knows… they might bail us all out then they go bankrupt… then where will we be?)

I hate to be the doom and gloom guy. I am writing this way for a reason. I need to give everyone of you a call to action. You need to get off the reliance of unsecured debt to start/run your company. Try to do as much as you can all cash. Even then, try to diversify as much as possible. Even in the best planning you cannot avoid an overall catastrophe but if you stay one step ahead then you will no doubt keep your head above water.

It’s easy to be the deer staring at the headlights of oncoming traffic. Just use enough common sense to step out of the way!