A good smart friend of mine, Red Scott once told me, “Cash ain’t cash unless it’s cash”. One of the fundamentals in business is to know exactly where you stand financially at all times; otherwise I promise you get a bite in the butt. Red once told me that in one of the companies he was the major shareholder of, Pier One, the CEO would know the sales, numbers from every store in the country by 10 the next morning. He also knew sales against last year’s numbers and against forecast. Also, he taught me, roughly right now is much better that exactly right 3 weeks later. Cash flow is probably one of the biggest reasons that start-up companies fail in the first year, it’s also one of the factors that can adversely affect your future bottom line too. I can tell you from bitter experience that borrowing money at a premium price will eat away at your profit margins quickly. Many will fail in the first 12 months. Why? A lack of capital. To avoid becoming a statistic you need know how you are paying for your start-up business and have a clear understanding of its financial prospects for the future.
Firstly, you must understand the cost. Going into a new business necessitates spending money. There can be an assortment of up-front and on-going costs including equipment, stock, marketing and professional services. Also consider the cost of up-front rental payments, furniture, fixtures and fittings.
Secondly, consider your cash flow and be prepared for a negative cash flow. Use a Pro-forma ‘Profit and Loss Statement’ (or P&L) to ascertain how much money you will need so that you can continue to fund the business until it becomes profitable.
Thirdly, think equity investment. That is, find someone who has the money to help you finance your business. If you do not have enough of your own funds this is a great solution to a lack of capital. A lesser percentage of a profitable business is far preferable to owning 100% of a failed venture. The reality is that if you do not have the resources to carry your business until it becomes thriving and lucrative, you are on a rapid descent to disaster.
If you would like to have Jack consult with you about your business growth, he is available as an on line coach, just contact him at firstname.lastname@example.org and ask him for his consultancy advice!