A short introduction for StartUps to many aspects of business in a short and concise way. This paper uses some phrases which have been encountered over the years which can be used as aide memoirs on different business issues. These can be particularly useful to new business owners in the initial period and further information on any of these subjects and many others can be discussed by contacting the author. Follow-up to any of these subjects can be taken by attending one of the MGE Business Workshops.
StartUps – phrases to help you remember some important things during that critical first year
Cash flow management can be segmented in three phases:
- From the Profit & Loss projection, forecasting Cash flow
- Adding ‘Actuals’ to the cash flow forecast and seeing the impact on the forecast
- Taking action when necessary based on what the forecast is telling you.
This is an old phrase but one (even in this electronic age) which is just as pertinent today as ever. To many Startups it is something that just happens and they have little control of. The road to disaster is littered with profitable businesses which have failed due to cash flow problems.
During the first 12 months the control of cash flow is critical so before any expenditure think about whether this needs to be spent and if there may be advantages of spreading payments. A typical example of this is when requiring a vehicle – the age old question of is it better to buy or lease a vehicle? Do the analysis but make sure you include the ‘whole life costs’ of insurance maintenance.
Managing cash flow is an essential part of running your business and should be reviewed at regular intervals to ensure timely actions are taken. It will aid the anticipation of any issues and allow preparation. For example if you have a potential sales opportunity coming up which would require a sum of working capital to be spent before you receive payment, your cash flow chart will enable you to understand how much is needed.
An important factor to understand when completing your cash flow forecast is to be pragmatic on when your customers pay their bills. Unfortunately, it is common for contractual payment terms not to be met and hence 30 days payment terms can end up as 45 or 60 days actual. Although, this should not be the case it is best to be realistic where your cash flow forecast is concerned to ensure you have a ‘buffer’ to cover worst case events.
MGE Business Solutions can supply a Cash Flow Tool with a free Tutorial on cash flow.
It sounds obvious doesn’t it? However, if you get this correct it can be an important difference from your competitors. Making it easy for your customers can be as a result of many things within your control, including:
- Making your website easy to understand what you are offering and the pricing clear.
- Making it easy to place an order with you
- Payment mechanism is quick, easy and safe
- Commercial terms which can be flexible
- Easy to speak with someone who can advise and make a decision quickly
- Less admin the better
- Rapid response if the customer has a query
- Delivery is as expected- with good, clear packaging – documentation clear
- Returns process is efficient and clear
- Post support is easy and efficient
- Attempt to exceed customer requirements and all customer facing staff to be trained and professional
Understand from the outset what is important to a customer and if there is anything stopping them committing to an order. It may be something you can accommodate and win the business. Remember: Know your customers’ requirements and if you are dealing B2B then understand customers’ customer. This way you have a better chance of anticipating events coming your way – either to mitigate any negative or grasp an impending opportunity.
As a StartUp the business is usually a result of many days/years of thought to get to the point of making the decision to ‘go for it’ and start in earnest. Of course this understandably means that you have an emotional attachment to the idea and are passionate that it should succeed.
This is can be a mixed blessing because there is a danger the expectations on the business are greater than the reality it can achieve. For example, it is easy to overestimate the potential sales and underestimate the cost base because you have already made up your mind this business idea will work.
This is usually apparent when ‘testing’ the business plan.
So, what in my opinion are some of the main items which make a viable business plan?
- The sales forecast is realistic which is supported by sound rationale and fundamental market research. Estimate how this is likely to look in the next year. Not understanding your market is one of the main reasons businesses fail in the first 12 months.
- The cost base (both indirect and direct costs) must be realistic and based on ideally quotations or budgetary estimates from reliable sources. Again look how these may change in the next year – for example labour costs could increase or materials costs decrease per unit due to economies of scale if volume is increasing.
- The resultant P&L should reap a net profit within a reasonable amount of time for this type of business. Obviously if a significant amount of investment is needed to obtain expensive machinery and other start up costs then the break even could be longer than a business which needs less initial capital spending. Again, the timings of rate of sales increase and when the positive aspect of marketing/advertising needs to be realistic with an appreciation of dependencies on various activities. For example, if product development needs to take place before manufacturing of the product then build contingency into the timings and understand all activities which need to take place before the product can be launched to market. Again be realistic!
- Have all potential effects (as far as possible) on your business been taken into account after researching – many of these may be outside your control but at least you can take action to mitigate or re-think approach. Remember the acronym ‘PEST’ for Political, Environmental, Social or Technological changes which could impact on your business. This is an area where some sensible risk analysis needs to take place so as to get a balance between the risk/reward and not to be overly pessimistic or optimistic on events taking place.
- Is the business sustainable? Can it build on a firm foundation and have a high probability of growing over the next 3 years – for example there would be inherent dangers in a B2B company which had a single product and a customer taking over 80% of this product. Of course it is difficult to generalise but it is clear that if the customer ceased trading, changed supplier or procured a different product there would be a major financial implication on the supplier.
- Is the person behind the business idea going to be the driving force to make it happen? This is a critical part of whether the business has a good chance of succeeding. The idea could be great but it needs certain skills to manage a business and drive it forward – do you have what it takes for this?
We can’t all be experts on every subject but as a leader of the business you need to be able to assess very quickly at certain times the following:
- Have I got enough knowledge or skills to make a judgement on a particular issue?
- Have I got enough knowledge, qualifications or authority to make a decision and implement it?
- Typical areas where this could be an issue is: Accountancy & HMRC rules, Financials, Commercial/Contractual, Legal/Law, Human Resources.
- Try to gather as much information on the subject as possible BEFORE you discuss with the expert. This way you will be able to explain the problem as quickly as possible and you should be in a position to ask supplementary questions to ensure you have maximum clarity. In many experiences I have found that experts tend to answer the question directly and accurately but don’t always offer additional explanation. For example, if your question encourages a yes/no answer you are likely to get a yes/no answer – the answer may require some dependencies or assumptions.
- When you have gone through the explanation of the issue to the expert and feel satisfied with the answers it is often good to solicit 2/3 options from the expert in order to make a decision. Quite often you will get several caveats from the expert, which is fine, but if the expert strongly advises you not to take a particular action it is a wise man that goes against this – you always have the option to get a 2nd/3rd opinion.
Firstly, there is no business without risk,
However, it is in your gift to identify the risks, mitigate where possible and assess whether the resultant risk is commensurate with the likely reward. Risks come in a range of categories. Technology risk, Commercial risk, Timescales risk, People risk and Political risk … are just a few examples.
It is wise to think through the implications of your decisions before committing and seek a view from someone who has experience and can give a more independent perspective. This can be a business Mentor for instance.
Many small businesses start because there is an immediate need for a product or service. This is great and can be the necessary launchpad for many successful businesses. However, if no activity is done to understand whether this initial need is sustainable or can grow to other customers/markets then this business may well be short lived.
It is ok to maximise existing product/services but if in parallel there is no work being done to explore product development, new products, new services, new value add, new customers or new markets then eventually sales will diminish. Unfortunately, many StartUps have the skills to satisfy the initial requirements but lack expertise in strategy, sales/marketing and business development and sometimes realize this too late.
If a business does not understand what factors drove the initial success of the business and does not anticipate what is required in an ever changing business landscape then it is in danger.
So using the term ‘accidental success’ may be slightly unfair (being successful in anything is something to be proud of) it is intended to emphaises that any business cannot afford to stand still. It needs to always be looking to satisfy it existing customers as well as looking for new ones. This is difficult in the context of a small business with limited resources.
Something to remember is that ‘creativity’ is something that you should try to apply to all elements of the business not just the product/service.
- Creativity in what you can offer commercially to the customer eg longer warranty, payment terms, etc
- Creativity in deliveries such as rapid service or alternative addresses etc
- Creative in making your process as efficient as possible
- Creative in making the technology available work for you
... and it goes on.
Previously I have said that business owners need to think carefully before making decisions – and this is imperative.
However, it is easy go into a state which I refer to as ‘analysis paralysis’ whereby the more information you gather the more complex the analysis, the more options available which results in a snowball effect. This can mean the time taken to consider all this data (especially if many people get involved) gets protracted and grows to a point it becomes analysis for its own sake.
Small aspects are analysed which will have little impact but seem to get thrown into the overall equation which over complicates the ability to make a decision – effectively paralysing progress and potential missing an opportunity OR failing to resolve a problem quickly enough before it becomes a bigger issue.
So some simple guidance here:
- Never lose sight of the objective
- Have a clear timeframe for coming to a conclusion
- If necessary - involve people who are experts on a particular field
- Keep the emphasis on facts not opinions
- Try to filter out non important issues and give priority to the issues which will have significant impact
- Reduce options to 2/3
- Make a decision and be ready to manage the consequences.
There used to be a culture in corporate UK business of making sure you were seen to be the last one leaving the office!
Whilst commitment and working hard is a necessary trait to have (however talented you may be) it isn’t a guarantee that you are performing the best or efficiently as possible. It may fool some people (even themselves) that you are adding contribution but if effort is wasted it actually can be a drain on the overall contribution to the business.
In some sectors (call centres?) there is some merit in having an environment which is ‘buzzing’ and energetic which encourages others to join into this atmosphere – resulting in healthy competition plus results.
In other environments it is worthwhile at regular intervals to give some thought to your planned activity and ask yourself the question “Am I doing this in the most efficient way?” There are a few questions you can ask about the order of activities: are we speaking with the correct people? If I did a little more desk research on a subject would it make the next stage more efficient?
We are all keen to get started and rush off and ‘do stuff’ but sometimes with a bit of forethought we can achieve better results in a quicker way by just taking some time at the beginning.
One approach is to diary 30mins end at the end or beginning of the week to review previous period and think about best way of tackling future activity. By the way it is useful to use this 30mins for consideration of any things you feel you don’t get the time to address under business as usual (BAU).
“A person who organizes and manages any enterprise, especially a business, usually with considerable initiative and risk.”
So if you are one of these you can also benefit from engaging with an experienced business Mentor who has encountered many of the things you will encounter. He can also bring a creativeness to the issues you will face across the business spectrum which can help you grow as an individual and business.