Trump University Entrepreneurship 101: How to Turn Your Idea into a Money Machine, Second Edition

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TRUMP UNIVERSITY ENTREPRENEURSHIP 101

Figure 16.1 Grandma’s Cigar Box

CIGAR BOX

All money flowing out

All money flowing

into shoe repair

business from any

and all sources

Lithuania in hopes of a better life in America. They literally had nothing

but a few hundred dollars (sewn into his cuffs) and the clothes they wore

on the ship. Saul decided that he would continue to make his livelihood as

a cobbler in the United States because shoe repair was the only business he

knew. Borrowing money from a few acquaintances, he set up a small work area

inside a friend’s tailor shop and began to build his business. So, how did Anna

come to understand cash flow, when many MBA students have trouble with

this concept? Simple: her cigar box! Money from any and all sources from and

for Saul’s shoe repair business went into the cigar box; all of the expenditures

came out of the cigar box. Anna watched that cigar box like a hawk. Figure

16.1 shows the simplicity of cash flow.

At the end of each day, week, month, and year Anna would count the

remaining money in the cigar box. Because she collected all the money and

paid all the bills, she always knew precisely what was coming in, what was

going out, and what was left in the cigar box. In those months when more

went out than came in, she understood the consequences of negative cash flow

on a real gut level: “Saul, can’t you repair more shoes? How about repairing

leather coats?”

There are many ways that cash can come into and go out of your business,

as shown in Exhibit 16.1. The important point to note is that your cigar box

only accounts for money that was actually received and spent. It does not

account for money owed to you or for bills yet to be paid. Cash flow is the

single most important financial tool to let you know the amount of life fluid

there is in your company at any one moment in time.

The Balance Sheet and Grandfather’s Banker

My grandfather’s business grew. In addition to shoe repair, he began to

offer other services (leather coat refurbishing, leather handbag repair) and

some products (belts, polishes, shoelaces). He rented a little more space

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Project Your Growth and Profitability

Downloadable Exhibit 16.1 Cash Flow Analysis of Saul’s Business

*

January ($) February ($) etc.

Beginning of monthly cash

balance

0 160

Cash Inflows

Cash Outflows

Cash actually received from

customers for sale of products

or services

80 95

Cash received from sale of assets 0 0

Cash received from loans 100 0

Cash received from other

financing: personal savings;

money received from family,

friends, other investors

100 0

Cash received from interest on

investments

00

Cash received from sale of stock 0 0

Cash received from all other

sources

00

59082swolfnihsaclatoT

Payments for all operating

expenses (rent, salaries,

insurance, marketing materials,

supplies, electricity, etc.)

20 40

Payments for actual purchases

of inventory

50 30

00sexatrofstnemyaP

Payments for acquisition of

assets (table, anvil, tools)

50 0

Repayment of loans (including

interest and principle)

010

Payments for bonuses, life

insurance, auto

00

(

continued

)

159