Being in business is tough and it takes a lot of guts to stick it out. I have the utmost respect and admiration for anyone who can start a business, survive and thrive.
One word sums up those who do make it work: CONFIDENCE
Not to be confused with blind confidence or bravado, business confidence is a key factor in success.
There are many aspects of running a business and successful business owners need to have confidence in all of them. Those aspects include:
- Product or service
- Marketing and sales
- Operations and finance
- Human resources
- Customer service
What I would like to focus on here is ‘Finance’. In my experience this is the one that underpins everything else given that if you don’t have financial confidence, it makes it very hard to achieve much else.
So what gives financial confidence?
Profit has to come first, because if your business isn’t profitable it will only be a matter of time before it fails or you run out of energy to keep treading water. In order to be profitable you need to:
- Have a plentiful and reliable sales pipeline.
- Charge the right price for your product or service.
- Understand and closely manage the ‘true cost’ of your offering.
- Closely manage your overheads through budgeting and reporting.
2. Cash flow
I’ve said before that cash flow is the lifeblood of your business. To have good cash flow you need to:
a) Have a good understanding of what impacts cash flow e.g.
- Time customers take to pay you.
- Time you take to pay suppliers.
- Time stocks sits in store waiting to be sold.
- Time jobs are in progress prior to being invoiced.
- The way assets are purchased e.g. with cash or borrowings.
- Borrowings and interest.
- Shareholder funds.
b) Closely manage cash flow through forecasting, to ensure you won’t run out of cash to continue. Constant cash flow problems are probably the biggest killer of business confidence. You’re never sure if you can take advantage of opportunities. You may also not know of a looming cash flow problem and take actions that make it worse, such as spending cash on items that aren’t in the budget or could have been leased or hired.
3. Time management
Remember time is money. If you aren’t doing things in the most efficient and cost effective way, this can have a big impact on all aspects of business. This includes having the right people doing the right things. The ‘opportunity cost’ of a business owner’s time is a big consideration here.
i.e. what else could you be doing with the time you are spending on low value work (like say, bookkeeping) instead of speaking with customers and staff to improve things.
Some people will say “but I enjoy the bookkeeping” or “I prefer to do it myself so I know it’s right”. If this is the case it’s vital to have someone else to do other jobs like sales, marketing and HR management. If you don’t, business will dry up and there won’t be any bookkeeping to do!
What helps with time management? Systems. They create an environment where others can perform tasks in a way that they can see and understand, rather than having to be ‘micro managed’. Systems help to eliminate mistakes and allow for constant improvement. Now is the easiest time ever to implement cost effective systems into just about any business, due to ‘cloud commerce’ delivery. If your competitor has systems and you don’t, you can guarantee they are able to deliver their services more cost effectively and efficiently.
4. Growth opportunities
Being able to take advantage of these is vital if you want to build a business that is worth something now and in future. Many business owners have aspirations to grow a business, but fail to get the basics right (such as ensuring it’s profitable, has good cash flow and systems to cope with growth.) Trying to grow a business that is unstable and not systemised is doomed to failure. You will not be able to cope with the demands of growth if you don’t get these issues fixed first.
5. Exit options
While this may seem a long way off to younger business owners, they are worth considering well before exit date. Depending on how you want to exit your business, you will need to consider if it’s a business that’s actually able to be handed over to others to run.
Irrespective of whether you sell or hand a business over to a successor, you will need to get the knowledge out of your head and into a system. Businesses that aren’t systemised are generally worth less than those that are. Purchasers will perform ‘Due Diligence’, which is an investigation into a business prior to buying. They will look into all aspects of the business to ensure it is a good investment and the business has a solid future and financial footing.
One of the biggest issues affecting a business value is the ability of the owner to eventually ‘walk away’ and this is impacted by systems that can be understood and implemented by a new owner.
Building a confident business takes a lot of work! Do you have business confidence?