How to Spend 10 Years Losing Money Without Even Knowing It

By 2001, I had lost my second business. It was ten years from the date that I started the first. Throughout those ten years, millions of dollars had run through my company bank accounts. Each and every season, hundreds of thousands of dollars were being paid out to our creditors, more inventory and equipment were bought, and every penny we had left over was consistently being reinvested into the company.

As the roller-coaster peaked and valleyed, my focus stayed steady and strong (or so I thought) as I plowed the profits back into the company to continue feeding its growth. I thought that the more I continued to roll-over the profits back into the business, the bigger and stronger my company would get in hopes to one day sell it and live off the profits.

When all was said and done, and both businesses were over, I didn’t was literally penniless. That’s actually incorrect as it was far worse, as I was several hundred thousand dollars in debt.

The Lesson:

Make money on every check.

A friend of mine went on a suicide mission as he had only one client. If you have read the previous entries of this series on what not to do in business, you already know I am quite against this philosophy. That being said, he represented a very large retailer in the United States and made one single item for them, season after season, and year after year. He built a very large business as he made nearly eight million sweatshirts a year for their stores until one day, they stopped doing business with him and picked a competitor who could make it for a nickel cheaper (hence, my reason for not going on a suicide mission).

When I learned of the news that he had lost his one and only customer, I went to visit him, as I was sure he was devastated. I went over to see him to tell him that I heard the news and that I was sorry to hear they had taken the business away from him. His response was far from expected.

He told me, “Thanks, but it’s probably better off. I wanted to retire anyway.” I asked him if he was serious about retiring, as I didn’t think he had the money to retire at his young age.

“I planned for this,” he said, “That’s why I put aside a quarter for every sweatshirt I made, in case of a rainy day. In three and a half years, I’ve made over twenty-four million sweatshirts for them. Multiply that times twenty-five cents a garment and do the math. As a matter of fact, I think I have enough for my kids to retire as well.”

Again, let me repeat, make money on every check. Put it in a separate bank account, a mutual fund, government bonds, or under your mattress for all I care (I wouldn’t recommend the mattress, though). Whatever you do, just put it aside and forget about it. Many people have a ‘rainy day fund’. Why? Because one day it is bound to rain and if you don’t have an umbrella… you will get wet.

To be clear, I still very much believe in recirculating profits back into my company. The only difference is that I allocate a certain amount off of each sale and simply build it into my margins. In hindsight, I now feel this to be a necessity.

In business, my philosophy is that if you are not making money… you are losing money. I may have worked very hard in my first two businesses, but I did not work smart, and there is a major difference between working hard and working smart. My friend lost his biggest account, but he had been smart enough to know the value of a rainy day fund.

… And what a fun rainy day I am sure he is still having.

Have a great day!

MJ

The following is an excerpt from How To Ruin A Business Without Really Trying… To receive complimentary chapters, sign up at the top right of the page to get a download link. For more information about the book, Click Here

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