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Key Idea: Make A Little Go A Long Way

Jose Navarro of Navarro Discount Pharmacies in Miami started his near-billion dollar operation on a shoe string.    More...

Key Question:


Make a little go a long way by cutting expenses to the bone.

Q: How does a business owner minimize the expenses of the business that requires a cash outlay?

A: Two ways: reduction and elimination. There are some things that you just have to have, but the cost of getting them can be minimized:

  • Comparison shop, including shopping online.
  • Take into account any taxes and/or shipping and handling fees so you know you are making an apples-to-apples comparison.
  • Look for generic brands that don't have the manufacturer's marketing cost built into the price but will serve you just as well.
  • Buy only the quality that you need and in minimal quantities.
  • Eliminate any costs of service you can by performing the service yourself or asking a family member to do it.
  • Accounting and janitorial services are the most commonly done by family members of business owners of start-up companies, but there are a myriad of administrative tasks that need to be done that family members can help with.

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 so accelerate collections and defer payments.

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

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.

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

If you are going to fund your gap with MOM then you want MOM to carry you as long as possible. How can you minimize the costs of your new venture? How can family members participate in the business without compensation?  What can you do in your business to improve cash flows from operations?

Clip from: Money: All about Financing Your Business

Silicon Valley, New York City, Sydney and the World:   When you are just  starting, it is usually about your money, called MOM, an acronym for My Own Money. It is also called "skin in the game."  Very few of us have a track record and can write a business plan that is so compelling that we begin with Other People's Money (OPM).

If you are growing, there is an abundance of stagnant capital that may be looking just for you.  Qualified investors (and people who believe in you) are looking for ways to grow their money either as a loan or as an investment for equity. It will require an excellent business concept, a well-detailed business plan (your story), and real financial projections. They will also require that you understand your financials, even if they are quite modest. Those numbers are the organics of a business, the basic 1-2-3s.

Business is just a series of problem-solving exercises. That's its nature.  If you do not have the stomach for it, get a job. If you think money is going to be given to you just because you have a good idea, keep your job!

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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

Make A Little Go A Long Way

Meet Carol Schroeder
HATTIE: There are so many others, Carol Schroeder founder of Orange Tree Imports went through college in three years so her parents gave her the cash they had saved for her fourth year. She used that cash to open her business.

Meet Jose Navarro
Jose Navarro's father escaped Cuba with a life insurance policy worth $4,000. This cash was used to start up what is now the country's most productive chain of pharmacies.

JOSE NAVARRO: I worked in that store during the day time, my father worked at the store during the whole day. When I finished, I went home, ate. My wife cooked and then my wife and I would go to the store and stay there until the store closes.

HATTIE: So we have an 18 hour day.

JOSE: Yeah, it was from opening that store and closing this one.

GRACE TSUJIKAWA: I mean just the excitement of starting and getting into business...

HATTIE: (Voiceover) Grace Tsujikawa said she ate a lot of potatoes during her startup. Albert Black funded his business by working a full time night shift for 10 years while running his business during the day.

ALBERT BLACK: It works for me.

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