Planning for temporary disasters.

I was mentioning at Pegasus how these last four or five days have been hard on sales, and a guy said, "Yeah, they said something on the radio about how most businesses don't plan for these kinds of things."

Well, sure. But neither do most households.

Anyway, I think what happens is that we tend to plan for the average. But when things are better than average, we spend the money trying to keep that going. Instead of saving it for when things are worse than average.

Under-capitalized businesses will always have trouble with these unexpected events, because they spend every dime they have trying to get more product and or catching up on bills.

Many small businesses are under-capitalized because the business --is -- their backup plan. They can't find a (decent) job, or they have a great idea (they think) and they hope they can leverage up their business through hard work. So they go all in, throwing everything they have into the effort.

I know someone is going to pop up and say that an under-capitalized business needs to raise money, hold back on the cash. But if you actually are one of those businesses, you quickly realize that you pretty much have to throw every dime into the business -- all the time. If you're not trying to leverage growth, you're probably going to go backward.

There simply isn't enough margin to both save and build. Because here's the thing: What you're trying to do is leverage every dollar into two dollars. So every dollar you withhold is really a potential two dollars you didn't make, which is a potential four dollars which is a potential eight dollars.

I mean -- that's what it means to pull yourself up by your bootstraps. You have to invest it in your future -- you're taking the risk to grow.

Of course, almost everyone makes mistakes (really, everyone makes mistakes) or gets caught short by some unforeseen event, and that's where businesses get into trouble with debt. The credit cards used to be fairly willing to loan money to struggling bootstrap businesses (don't actually know if that's true anymore.) So then, not only are you trying to build your business but you're trying to pay back debt.

I'm not saying that someone smarter than me can't build his business and save money at the same time, but I never found it possible.

If you are well capitalized, you might have an emergency fund -- and ironically, you'll probably need it less. Or you may have an opt-out where going backward for awhile isn't something you want to do. "Screw this not making money!" and you quit.

Some of us though are using different coin -- hard work, to be sure. A better idea, maybe. But also -- but mostly, well, the willingness to risk. You may not have much, but the fact that you'll risk it all may be the reason you are in business, and others aren't.

That same willingness to risk is going to go into the building of your business.

It wasn't until this last decade or so that I had enough credit and cash on hand to handle the temporary disasters -- and I remember thinking, the first time it happened --"Oh, this is how it feels to actually have emergency funds!"

Wow. It's a totally different feeling.