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Key Idea: Do A Lot With A Little

In 1940, operating out of a single pharmacy in Havana, Cuba, Jose Navarro, Sr. taught his sons the true meaning of customer service. People don't get sick just during banker's hours, and Navarro worked long into the night to ensure that his customers' prescriptions were filled promptly.  More...

Key Question:


You must do a lot of things with very little cash.  Four thousand dollars is not very much money to start an inventory intensive business like a pharmacy, but the Navarros did it.  Not only that, they managed to open additional stores with the profits of existing stores.

Q: How can you expand your business without incurring debt?

A: It's difficult, but as the Navarros have taught us, it is possible.

Capital is required in a business to fund 4 things:

  1. Inventory, having goods available for sale.
  2. Receivables, carrying amounts owed to you by your customers.
  3. Capital investments, such as computers, equipment and furniture.
  4. Operating expenses, salaries and overhead expenses.

Let's look at these in terms of Navarro Pharmacy. They certainly needed inventory to stock their shelves. Fortunately, since they operate in a "cash and carry" business, they needed no financing for receivables. In the area of capital investments, as well, they were fortunate to have minimal needs.

A manufacturer, for example, would have a much more significant need of capital in this area. Finally, they minimized their operating expenses by minimizing their own salaries, plowing the earnings of the business back into the business to fund its expansion.

Q: Can any business accomplish what the Navarro's accomplished in funding the company's expansion with capital generated by the business?

A: The requirement for external conventional (bank) or equity (additional owners) financing to realize your business plan will vary based on the nature of your business and the speed with which you want to expand.

Q:  What's the best route to fund expansion?

A:  The most expensive route is the equity route, where you actually yield part ownership in your company and generally some control to a Board of Directors. If you are in the business of cancer research, this is most likely your only option. The least expensive route is organic growth, where you reinvest the profits of the company in the company to fund its growth. This method is effective if growth does not require an inordinate amount of capital and if the pace of organic growth is acceptable to you.

The vast majority of businesses choose the road in the middle of conventional bank financing where inventory and receivables are supported with lines of credit, providing working capital to the business, and long term assets, such as buildings and equipment, are financed with long term debt. You'll have to decide what is best for you. 

Managing cash flow from operations is a great way to extend the life of MOM. Any amount will go further if you can get cash into the company quicker and postpone disbursing funds from the business.

Q: How does a small business owner manage cash flow from operations to his or her advantage?

A: In addition to the money you put into the business, debt financing and equity financing, there's cash flow from operations. Primarily, this consists of cash receipts from sales, generally the collection of receivables, and cash disbursements related to inventory and other accounts payable purchases and, of course, payroll. Let's look at cash management strategies for each of these:

Cash Receipts from Sales

If you are not in a business where your customers pay cash for goods and/or services received, then you will have accounts receivable. The sooner your customers pay their bills, the better your cash flow. To encourage them to pay promptly:

Collect advance deposits on sales if possible.
Get your invoices in the mail quickly, preferably delivered with the goods and/or services.
Offer a small discount to customers who pay the invoice substantially before it's due. Put this clearly on your invoice, e.g., "2 10, Net 30" means the customer can take a 2% discount if (s)he pays in 10 days, otherwise payment is due in 30 days.
Charge interest on amounts not paid on time, i.e., according to the terms of the invoice. Prominently display the interest rate and terms on your invoice.
Call each customer on THE day that his or her invoice is past due.
Mail monthly statements summarizing outstanding invoices.
Most accounting software packages used today have this capability. Most importantly, minimize your bad debts. Get credit references and do credit checks on all new customers. Monitor your accounts receivable aging daily and stop shipping or serving problem accounts until collection issues are resolved.
Inventory Purchases and Other Accounts Payable Items Here, our strategy shifts. While we do everything we can to accelerate the flow of cash into our businesses, once it is there, we do all we can to hold onto it as long as possible. Don't cross the line of affecting your credit rating or vendor relationships, but walk right up to it. Here are some specific things you can do:

Practice JIT inventory control. JIT stands for "just in time". Order what you need to be available when you need it, but don't stockpile goods. Inventory investments tie up MOM.
Ask your vendors for extended terms. Tell him you are starting a new business and you could build it up faster if you could match your payments to the vendor with your collections from your customers. Take the time to explain your business to your vendor and then ask for terms of 30 days more than your normal collection cycle. In other words, if most of your customers pay in 45 days, then ask for 75 days. Remember, your vendors are like you, they are looking for new quality customers. And who can better sell the idea of your business' promise than you?
Deposit your funds locally and then arrange to have them transferred at the end of each day to an out-of-town bank. Write your checks on the out-of-town bank. This usually gains you about three days of "float" where the vendor records your payment before the funds are actually available to him or her. Writing a check without the funds to back it up is against the law and we are certainly not advocating anything illegal but good cash management systems take advantage of the float.
Payroll If you are one of those rare small businesses who have started your business with employees, you have special considerations.

Meeting payroll is one of the biggest responsibilities and expenses of most businesses. You do have to pay your people and you certainly have to deposit your payroll taxes on time. Still, there are some cash management opportunities here.

Outside payroll services and staff leasing companies provide a wonderful service to small businesses. In addition to handling all the required filings, they offer the opportunity to procure certain employee benefits, such as workmen's compensation insurance, at reduced rates since you are purchasing as part of a large pool. But these services may be a luxury you cannot afford in the early years. In addition to the cost of the service, because the payroll service company is writing the paychecks for your employees on their account, they'll require that you fund that account several days in advance to ensure the funds are available as they process the payroll. They also draft the payroll taxes from your bank account, including the employer portion of social security, as the payroll as processed.

In fact, you are required to remit payroll taxes, those withheld from your employees and the portion the employer pays, at varying times based on the size of your payroll. The smaller the company, the more the deposit can be delayed. You can research the statutory requirements in your State on the Internet. The point we are making here is there are cash management opportunities in processing your own payroll.



Think about it

Have you explored funding sources? Do you know how to talk to a banker? Can you grow with retained earnings until your a track record to take to a bank?  Do you know successful people in your own industry who would invest in your growth?

Clip from: Navarro Discount Pharmacies

Miami: In this city, a destination for new Spanish-speaking Americans, finding somebody who understands you, knows and feels your pain, is a seismic relief. With a profound empathy, this family's business is committed to service and to solving very big problems for their customers.

With an abiding willingness-to-serve, this family's business is one of the most profitable per square foot of any retail store in the USA. When we taped this story there were 12 locations generating $160 million in annual sales and jobs for nearly 600.

So many new medicines are announced every day, it is almost impossible for anyone to keep up. But, those new Americans with a limited command of English, and our elders who are taking multiple medicines, have special challenges.

This family has always been committed to serving their customers. Eighteen-hour days, seven-days-a-week -- whatever it took to get the job done and keep their customers in good health -- these people have done it.
In the process, they have created a first-class business.

Opened in the United States in 1961, the two sons became pharmacists; and today, with 600+ employees, they have become the most productive pharmacy per square foot in the USA and they are a force for good that is helping to reshape Miami as a world-class community.

A classic family business, three generations of compassionate people are involved at every level of the operations.

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Navarro Discount Pharmacies

Jose Navarro, CEO

5959 NW 37th Ave
Miami, FL 33142

Visit our web site:

Office: 305-633-3000

Business Classification:
Retail, Pharmacy

Year Founded: 1961

Do A Lot With A Little

HATTIE: (Voiceover) When his father made it out of Cuba, Jose helped him get his new American pharmacy going.

JOSE: My father came with no money whatsoever. He was lucky enough to have an insurance policy that was worth $4,000. And with that, he went into business. I work in that store in the daytime.

HATTIE: Right.

JOSE: My father work at the store during the whole day. When I finished, I went home, ate--you know, my wife cooked. And then my wife and I would go to the store and we'd stay there until the store closes.

HATTIE: So we have an 18-hour day.

JOSE: Yeah, it was from opening until closing to opening that store and closing this one. And that was going on seven days a week. I remember in those years, our entertainment Sunday was to get in the car and do our deliveries that we had during Saturday and Sunday. And we had to deliver to the customers.

HATTIE: But you'd get out in the fresh air.

JOSE: So the whole family got in the car and started doing deliveries. I hear--and I keep hearing stories that people went to him and said, you know, `I cannot pay you for this.' And, you know, that's very emotional.

HATTIE: Right. But he would give them their medication because they needed it...

JOSE: Right. Right.

HATTIE: ...and he would let them pay him later. And maybe he never got paid. JOSE: I always had a dream to have a drugstore chain. That was a dream.

HATTIE: It wasn't a drugstore. It was a drugstore chain.

JOSE: Chain. And to expand and to grow. I always wanted that. I always knew that. I had no doubt in my mind that that's what I wanted.


JOSE: So we started. We started in that little store. We moved that store three times making it bigger. I went to school and got my pharmacy license.

HATTIE: Your pharmacy license.

JOSE: My brother also went to school and got his pharmacy license. We started working and, you know, we were putting in long hours, long days. It was what we liked. It never really seemed that hard to work. I mean, we worked there from opening till whatever, and it seemed so normal. And then, we decided to open the second store. That was hard, that transition from the first to the second. There were a lot of sleepless nights. 

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