My Greatest Magic Trick: Creating a Million Dollars in Cash Flow Overnight

So I’ve decided to share my coolest business magic trick with you. I can create a million dollars in cash flow out of thin air – and valuable as a million dollars is, there’s nothing like magically creating extra time.

Now, now, I know that a magician isn’t supposed to go revealing the way his tricks are done. It’s bad for business, and where’s the money in that!?

But what’s good for you is good for business, so I’ve decided to share.

Now You Owe 4 Million . . . 

First, let’s suppose that you have 30 day terms with your vendors and a million dollars in payables every month. Imagine that we’re just looking at the first four months of the year, January through April.

Over the course of those four months, then, the total payments are 4 million dollars.

Check out this picture:

So how do I create a million dollars?

And Now You Owe 3

All I have to do is extend normal trade terms from 30 to 60 days and suddenly you owe nothing in January!

That means that the million dollars walking out the door in January is still in your pocket. A million dollars has just been added to the positive side of your cash flow.

That’s right: in the four month period of January through April you’re now paying only 3 million dollars! You still owe that million, but by changing the timing of your payments, it’s been pushed back every month going forward.

Don’t Try This at Home

So why have I told you one of my greatest magic tricks and one of the best strategies of my turnaround success? Because the secret’s in the sauce!

My real talent is playing, “Let’s Make a Deal.” They don’t call me Monty Hall for nothing. The key – and hard part – to this magic trick is doing the right financial assessment and then successfully renegotiating with vendors to obtain extended terms and create that improved cash flow.

When businesses try to get vendors to give them an extra 30 days to pay a million dollars, vendors get agitated and concerned. My job is knowing what vendors need to hear, what makes them comfortable, providing them with the proper assurances and then making sure that those 30 days are used in the best possible way to ensure things get back on track by the second month.

Remember, you have to keep to your negotiated deals. You don’t want this to blow up on you, and it takes a professional to see this process through because generally this trick is one piece of a larger successful turnaround and restructuring strategy.

Conclusion

In business there’s hardly anything so valuable as creating time, and if you can make money come out of that time to boot, you’re in great shape. My skills lie in putting people into great shape.

My golden formula is time + energy = value. I create the time and bring the energy, and with those two pieces in place I can provide value.

Have you ever tried to renegotiate your terms? If so, what happened? Have you ever tried this trick yourself?

Prepare for Change: The Tale of K-Mart the Big Gorilla

Everything changes but change itself.

– John F. Kennedy

Little rings truer to me than this statement by President Kennedy.

I was speaking to a CEO group just last week and I was telling them: change is coming, change is here, change is staying. What does that mean? It means that everything changes but change itself.

Conditions will never remain the same, and as a business person you have to prepared for that. Be ready for the future and be ready for change.

Let me give you an example, that I like to call the Big Gorilla example.

A while back I was CEO of a manufacturing company that made t-shirts and sweatshirts. We did good, steady work, and one day K-Mart came to us and started placing huge regular orders. A big change!

They asked us to change our manufacturing capabilities to suit their needs. We did. Another big change that seemed worth it because they ordered so much so regularly.

Then one day, after we produced a million dollars worth of merchandise branded explicitly for K-Mart, they told us not to ship their order, that they were having some financial issues. That was $1 million of merchandise!

This was unwelcome change, and this is the power of the Big Gorilla. The Big Gorilla changes your customer mix; it changes your business; then it changes its relationship with you.

When K-Mart told me to destroy the merchandise and that I couldn’t sell it anywhere – I just had to eat it – I was pretty perturbed. I, of course, didn’t listen, and sold the merchandise overseas at enough to break even. When K-Mart eventually found out (an executive was vacationing in the area and noticed the locals wearing the merchandise), the company terminated its relationship with us, changing the nature of our business again. We had lost our Big Gorilla.

Two lessons come out of this story. The first is: Be Wary of the Big Gorilla. It’s nice to get a big buyer but when someone controls that much of your customer pie, change is always on the horizon.

And that brings us to the second lesson: Change is the Only Constant. Believe it and prepare for it by staying aware, recognizing that all projections have holes and flawed assumptions, being proactive rather than reactive and having controls in place.

What change has caught you by surprise? How do you prepare for change? Have you ever had a Big Gorilla – what happened?