Roxburgh 558 Views

Having started my own business a few years ago

(after 20 years of working for Big Businesses), I can tell you it is an exciting experience. Sure, there isn’t that guaranteed monthly pay cheque, or the four weeks annual leave, or paid sick leave, or talking to your fellow inmates in cubicle city BUT you will be your own boss. That first feeling of freedom is amazing. I call it the Euphoria Stage.

Around 72 hours later, when the freedom cloud starts to evaporate, the cold hard reality hits you. You’re it. The buck stops with you. The bills are still rolling in and your bank account is ticking down to zero. You have now entered the Dread Stage.

It’s usually at this point that you turn to Google looking for help. Hopefully the following five tips will help you overcome that fear and reach the stage that usually lasts for the rest of the business life, the Rollercoaster Stage.

1. Watch an episode of the Shark Tank

While I wish Channel Ten were paying me to promote their show, I find it very interesting to watch how each of the successful entrepreneurs (sharks) prey on the show’s victims (or newbie business owners looking for funding). If you watch carefully you’ll notice the sharks only ask four critical questions – what is the product/service, how much does it cost to produce, how much do you plan to sell it for and how many sales do you make a month. Those four questions tell them margin (profit per product) and capacity (maximum product production per year) which immediately determine the profitability and value of the business. And that’s the secret to a successful business. If you can get accurate answers to those questions (for every product/service you plan to offer), you’ll quickly work out if your business idea is going to be a hit.

2. Have a serious look at your cash flow

Poor cash flow kills most businesses. Economists like using big words like liquidity or operating capital but it’s far easier to use the analogy of a person walking in a desert. Naturally you’re the person and you’re constantly thirsty. Cash flow is your water. You need it to survive. As soon as a business doesn’t have enough cash to pay its monthly bills, debts start piling up and when the Australian Tax Office doesn’t get paid, you’ll be asked to meet with some very nice accountants in expensive suits known as administrators, receivers or liquidators. They’ll either work out a business finance arrangement to get you going again or more likely they will close your doors and sell everything of value to pay part of your debt.

To avoid that outcome, it is important to do an annual forecast of all the likely debts your business will incur and match those to the sales/month you need to make to pay them. And don’t forget your terms of payment. Your business may not see the cash from a sale until 30 days later (or if they aren’t good customers, 60 or 90 days). If you find that you’ll be dipping into the red (for a short period), that’s when getting a business loan is a good idea. The alternative could be bankruptcy.

3. Write a 12 month business plan (or have one written for you)

The Roxburgh Group has written hundreds of plans for business owners. The single common factor across all of the businesses we have helped is that the planning process helps the business owner to understand all the elements required for the business to be a success. There is always something they hadn’t considered.

It’s why banks require business owners to present a business plan in order to get a loan. It’s not because they like the paperwork (although it might be). They want the business owner to have gone through a solid process of taking a good hard look at the fundamentals of the business. That’s not just margins, profitability and cash flow – it’s looking at the competition, the potential customer base, the point of difference for the business, the innovation it will bring to the market and how it’s going to attract sales.

4. Design an innovation schedule

You’ve had a great idea to start the business, now you need to work out where new ideas will come from. Ideas are the lifeblood of your business. Consider that Apple’s success wasn’t just built on the iPod.

If you are a sole trader, think about when you usually have new ideas about your business. It could be in the shower, just before you fall asleep, on a run, or on the train. Then make sure you have a pen and paper handy (or iPad ready) to write them down. They may not be earth shattering ideas but they all lead to innovation. And that’s good for your business.

5. Plan your exit

It seems strange to plan your exit when starting a business but that’s what the sharks are thinking about when they are looking to invest. Whether its dividends, a stockmarket listing or a straight sale, it comes down to your business goals and objectives. There are many ways to exit a business so talk to your trusted accountant or solicitor.

Keep in mind, the most successful entrepreneurs are the ones who sell their business at its most valuable point. Sometimes that’s only 1 or2 years after they start up. And hey, if you’re offered a few million dollars for a business you’ve only just started, don’t forget me.

Original article written by Anthony Lowe, Director, The Roxburgh Group for Businesses. The Roxburgh Group for Businesses provides support services to Australian businesses with less than 200 staff.

Call us now for an obligation-free chat

Call 0409 925 917