I love serving entrepreneurs and their businesses in part because entrepreneurs are optimistic and positive people. Optimism is a great trait to have when you are building a business because it gets you through the ups and downs that are associated with any new business venture. But optimism can also cause problems and keep an entrepreneur from objectively looking at their business's performance.
When the entrepreneur’s company is performing poorly and there is a need to objectively analyze the performance and cash flow of the business, being optimistic and positive makes it difficult for the entrepreneur to make the prudent decision to cut expenses and possibly even employee’s jobs. It can also cause the entrepreneur to take risk that are not in the best long-term interest of the firm.
I know about this first-hand. Two-and-a-half years after opening my first entrepreneurial company (a logistics company in the 1990's), there was a major downturn in the market my firm served. The downturn was caused by two factors. The first was Federal government rule changes for the imported materials we moved (if you're interested, more information can be found in Wikipedia under "Voluntary Export Restraints"). The second was a shift by manufacturers to domestic sources of the raw materials we moved as a result of the rule changes.
Prior to this, my company had cheated death three times after the start-up phase. Two were the result of losing a large customer and the third was when a large customer went bankrupt. My optimism and positive attitude allowed me to pull my business through the bad times and to motivate my employees to work to turn the company around.
The fourth time I was not so lucky. A few months after the downturn began, it was evident that this was not a temporary situation. I remember sitting down and running a cash flow analysis one Friday evening after all the employees had left for the day. The analysis showed that my company was about to face a major cash crisis.
At no time did I consider letting employees go or cutting expenses. I had willed my company to succeed before and I was sure I could do it again. I was also very loyal to the employees who had helped me build a successful business.
In the end, this decision cost me a lot of money, my business failed, and I had to bankrupt the business. I also had to take a personal bankruptcy because when the business failed my vendors sued me personally for the balances due because I had personally guaranteed all of my company's debt and loans.
If I had it to do all over again, I would have cut employees and expenses to match the expected cash flow immediately after analyzing the cash flow that Friday evening.
I learned the hard way that it is better to cut expenses and payroll when there are cash flow problems in order to save a company and the remaining employees’ jobs.