Why Most Businesses Run Out of Cash Before They Realize It - 2/8/2025

The frost came earlier than Joel expected. He was my local project manager and lived a town over in North River, in the shadow of Gore Mountain. It was two weeks from Halloween, and I was not expecting to take a drive 5 hours from NYC to our log cabin that we were building on spec. I was standing in our show house living room, looking through where a window should have been. I got in the car in NYC wearing a light fleece and my checkbook. My hands were numb, and every other breath fogged up my glasses. Six months ago, we purchased a Heritage Log Home Distributorship serving all of Adirondacks. I was excited because we featured Adirondack style log home designs at a good price in an up-and-coming location at the foothills of a world class ski mountain.

Joel took the checks from my hand to distribute to our subcontractors. "You put a deposit on those building lots at the right time as there has been a flurry of activity, and a number of other lots closed and started construction." Joel had a warm smile, but I felt a knot in my stomach. I asked where I can find the new construction. He said check out lot 173 and lot 198.

I said goodbye and did a drive by of both lots, one was on the ridge looking at the ski mountain and the other sat opposite side of a spring fed lake. As I looked at the shells of these homes, you might have guessed it Adirondack style designs of two log home kit competitors.

The drive home felt like minutes as I ran different financial scenarios in my head, I was already strapped for cash, construction was taking a lot longer than I expected. An idiom crossed my mind that "imitation is the best form of flattery" but what I was really thinking about was the game of musical chairs. The following day I ripped up the contracts on two of my other lots and lost my deposits. It was October 2004, 20 months from the start of the worst US housing crisis since the Great depression.

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In my book, Breaking Barriers: Overcoming the Top 5 Financial Myths that Keep You Broke - A Guide for the Small-Medium Sized Business Owner, I explore how many businesses run out of cash before they realize it as it is often it is tied to behavioral biases that many, me included, can succumb too. Applying logic and rigorous analysis has to be combined with remaining objective and honest with oneself. Here are three common mistakes to look out for:

- Mistake 1: Underestimating Funding Needs: Optimism bias will color your financial planning analysis. Use a range of assumptions from best, worst, middle case scenarios.

- Mistake 2: Ineffective Delegation and Prioritization: The illusion of control is difficult one, especially for entrepreneurs, as we all believe that we have an ability to control outcomes when in reality all we can truly control is our attitude and actions.

- Mistake 3: Lack of Flexible Financing Options: Staying flexible and having an open mind on financing can have positive impact on cash flow and customer relationships.

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