Financial Maragement

All posts tagged Financial Maragement

The Three Profits of SME's WCP 2013

YOUR CHECK LIST FOR RAISING CAPITAL

As check lists go this one has been kept pretty minimal, see it more as a thought starter for a list of your own! 

Check your must do list!

 

  • Have all your legal documents prepared and in order including all of your corporate information (ABNs, taxation summaries, core financials, assumptions, insurance, contracts etc) centralised and easily accessible so that it can be supplied to potential investors upon request.

  • Ensure the information you provide to potential investors is easily understandable, clear and accurate. The business may seem simple and straight forward to you but remember it may well be complex to them. Keep your presentation simple but ALWAYS have every detail close to hand for the investor who asks that curly question. With cloud storage solutions and tablet mobility there can be no excuses for poor preparation.

  • If successful you will end up in a relationship with these investors, so make sure your new partners and you both have the same goals (equity splits, exit strategy, founders’ roles etc) and that the culture is right.

  • Be prepared to negotiate and give some ground to get a deal done.

 

Understand your don’t do list!

 

  • Don’t think you have the investor’s cash in the bank until it’s in the bank

  • Don’t be cocky. You need to show investors that you not only have a good idea, but are willing to listen and learn off them. Most of the time, they are investing 80 per cent in you and 20 per cent in the product.

  • Don’t hold to an unrealistic goal on valuation – its always better to have 10 per cent of something than 100 per cent of nothing.

Yes it’s a very small list, perhaps the missing advice is that wherever possible seek experienced professional advice, yes it will cost you but long term it will prove to be a very sound investment.

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By, Neil Steggall

The Barking Mad Blog

Business Advice with Bite

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Crowdfunding - WCP 2014

 

Raising Capital is a lot like Internet Dating!

Raising capital is stressful and incredibly time consuming. It’s a full time job. So if you embark on a money raising mission, make sure your business is at a stage where it can survive (and hopefully flourish) with minimal input from you. The capital raise will demand most of your time and attention for the next little while.

It’s actually a lot like internet dating. You write a profile (information memorandum) you go on a first date (swipe right), you decide if you’d like to see each other again, (thank-you text), one party plays hard to get (valuation), meet the parents (due diligence), buy a ring (appoint lawyers), ask the question, (term sheet) and get married (settlement).

Once you’ve got a little seed money to work with, it really then becomes an issue of timing. If you go to the market looking for money before you have a concept or product, you don’t have as much leverage with investors and could potentially be beaten down on your valuation. So founders are generally better off building the product and getting as much traction as possible before courting significant further investment to reduce the risk profile of their venture.

The longer you can hold off, the more leverage you have with investors. But the longer you wait, the more risk there is that your competitors will land funds and get the jump on you. And it can be hard to play catch up.

Preparing the business for a capital raise correctly is critical. My advice is to find yourself someone who knows what they are doing, has experience in the area and importantly is respected by the VC community.

A skilled and trusted advisor is worth their weight in gold, they provide invaluable advice on how to groom the business for a capital raise, such as having an attractive shareholders agreement, employment agreements, and commitment from the founders in place.

Once you have a data room prepared with an information memorandum and financial model  hit the pavement and talk to investors.

Let your advisor’s line up 10 or so meetings, target verbal commitments from these early potential investors. The best way to describe this part is that no one is ‘in’ until they sign a term sheet. Have one of these prepared and printed in your back pocket. Don’t be afraid to put it in front of them to sign. You’ll quickly work out their position.

If you are aiming to raise $1.5 million the hardest part will be getting that first chunk signed away. No investor wants to be the first $50,000, they want to be the last $500,000. So it’s important to lock down some foundation investors, and use them and their name to secure other investors. It’s all part of the gamesmanship and you need to have your strategy down pat before you got out to market.

Once you’ve locked down the funds, management now becomes a priority. Most investors don’t just hand over cash and then walk away. They will set benchmarks, timelines and other KPI’s. You need to keep them in the loop, so regular corporate updates are critical. Ask them what they want to know and how often if you are unsure. Don’t be afraid to ask advice from them, leverage them and their networks as much as possible. You’ll sometimes be amazed at how much of their time they are willing to give.

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By, Neil Steggall

The Barking Mad Blog

http://www.neilsteggall.org/?p=1235

Business Advice with Bite

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How to structure your startup for investment

Most Australian startup’s will never raise a first round of funding. The recent Startup Muster survey puts the number at just 14%. For those startups that do raise a seed round, the chances of securing VC funding at Series A is even lower. Nevertheless, it’s important to understand what potential Angel and VC investors will want to see from a legal standpoint before investing. This article will set out some of those requirements.

 Incorporate!

You’re not going to raise money unless you’re running your business through a limited liability company structure. Better yet, set up a holding company/operating company structure. Investors will invest in the holding company, which will own 100% of the operating company. This structure can protect the assets of the business from risk of seizure, should the operating company be sued.

A small number of more experienced Australian founders are now setting up their company structure in the US, even if they’re running the business from Sydney or Melbourne. If you’re looking to secure investment over in the US, this approach can make a lot of sense. That being said, it’s definitely only worth doing if that’s your goal.

Founder vesting – sensible for founders and investors

The reality is that a startup isn’t worth much, particularly in the early days, if the founders leave. It makes no sense at all to issue yourselves with equity that doesn’t vest over at least a couple of years, and investors know this. The standard startup-founder vesting structure is a four-year vesting schedule with a one-year cliff, meaning you get nothing if you leave before you’ve been working in the startup for at least a year, and you earn the rest of your equity over the four years.

Many VC investors will require founders to “revest” upon investment. This means that even if you’ve been working on your startup for a couple of years before securing funding, you’ll have to work for another four years to get all of your shares.

Founder vesting obviously make sense for investors; they don’t want you ditching the startup two months in, but it also makes sense for founders. If your co-founder leaves the business with his 25% stake fully vested, the business is pretty much guaranteed to fail. You’re either going to end up working away building up the value of his shares while he chills out on the beach, or you’ll end up quitting too. Vesting means he’ll leave with a smaller amount of shares, which is much more manageable.

Preference shares

VC investors will often only invest through preference shares. The basic idea behind a preference share structure is that it gives investors a liquidation preference in the event of a sale. Preference shares are a way of ensuring that investors get repaid their initial investment before founders and employees get anything.

Obviously if you can avoid issuing preference shares, and simply issue ordinary shares, that’s great for you and your co-founders.

Employment contracts

No one ever bothers putting together an employment contract when they first launch their business. Why would you? You’re probably not even paying yourself!

If you’re looking to raise a round, you need to sort out your employment contracts for a couple of reasons. First of all, investors will want to know you’re not just pocketing their hard earned cash; they’ll want you to set out a small salary etc. Most importantly, though, they’ll want to ensure that you’re entering into a non-compete with the company. If you don’t get on with your investors, they don’t want you quitting and setting up a competitor business the next day.

To conclude

Investors are a diverse bunch, so they’re not all going to be looking for the exact same structure before investing. If you’ve got a great team on board and you have significant traction, you might be in a position where you can dictate terms. Unfortunately that’s not very common! It makes sense to structure things professionally and to be pragmatic about what you’re going to offer investors. It might just help you end up as one of the 14% of Australian startup’s who raise a round!

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By, Neil Steggall

The Barking Mad Blog

Business Advice with Bite

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Seven steps to getting rich  

Nest of Riches - WCP 2014

The accumulation of wealth is easier than most realise. Once your antenna is raised to embrace wealth potential and you commence the journey riches will follow. In recent times wealth and its creation have been seen as less than desirable perhaps even a little dirty, not quite the done thing.

I find this attitude strange as throughout nature creatures nest and those capable of building a better nest live longer, breed more successfully and generally enhance their bloodlines and community. Surely that’s a good outcome for all?

Wealth and its creation should not be considered ‘dirty words’, but remember the discrete and careful enjoyment of its benefits are attributes to be admired. True wealth is a state of mind and an ongoing way of living which embraces so much more than your bank balance.

As with so much in life a steady, incremental plan, will deliver a surer chance of success in the creation of wealth. Yes it is slower than “doing the great deal” but it is also more certain in outcome and you will have more chance of holding onto and enjoying the wealth you create.

It doesn’t matter how much you earn, whether you are a Gen Y first time investor or a seasoned baby boomer with multiple assets, there are seven key strategic behaviours that set apart the wealthy from the rest of us.

  1. Spend less than you earn – this sounds obvious but many of us live from pay cheque to pay cheque, which indicates it’s a lesson that is quickly forgotten. Save and invest because the law of compound interest will help ensure your nest egg grows quickly. Start as soon as possible because time is your best friend.

  2. Invest as much as you can in assets whose underlying capital value will grow – remembering income is usually taxed at a higher rate than capital growth.

  3. Reinvest any capital growth – as this adds to the amazing power of compound growth.

  4. Do not be afraid of debt – leverage accelerates your net worth but keep a suitable buffer for the unexpected.

  5. Invest in yourself – it pays to broaden your fundamental investment knowledge.

  6. Have a mentor – a coach will help drive you and keep you focused on your long-term goals.

  7. Have a team of experts – remember you don’t have to be the smartest person in your team.

Above all, generating wealth is about having a purpose and focused determination. We are all living longer and will need more wealth to look after ourselves when we are older. State pensions are no longer the safety net they once were and advances in medical research keep us healthier for longer, but at a cost.

Start today by determining how much wealth you want to hold and by which dates. Write a game plan detailing how you are going to achieve wealth, refer to it daily and update it regularly as change occurs. The sooner you start the easier it is!

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By, Neil Steggall

 The Barking Mad Blog

Business Advice with Bite

http://wp.me/p401Wv-j2

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Connect with me on LinkedIn, Twitter or Wardour Capital:

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Crash - WCP 2014

 “How important is profit?” this question in one form or another is one of the most common questions we receive from start-up owners or potential start-ups and surprisingly it’s not a simple answer.

Some time ago I sat down for a chat with a highly intelligent friend who had recently joined the board of a mid-sized family company. “I just don’t get it” she said “everyone tells me the business is booming, sales are up, profits are up yet from what I read the company is broke”.

My friend had sat down with the half year results and looked at the first two quarters performance against budget. Revenues were up by around 35%, Gross Margin was tracking, as a percentage, around 5% better than budget and operating expenses were around 11% lower than budget leaving a very healthy EBIT compared to budget and management applauding themselves all round.

Where is the problem? I hear you ask.

Cash or rather the lack of it was the problem. As revenues and revenue projections grew the funds allocated to the raw materials and finished goods needed to service such growth had increased exponentially as had the debtor’s ledger.

Yes the business was producing more at lower cost and selling every item produced at a profit but amongst the excitement no one had calculated the impact on future cash flows.

If you achieve an EBIT of 20% (which is on the generous side) it means you have to outlay costs, in advance, of at least $0.80c in every dollar of anticipated revenue. You may offset this to some extent by negotiating an extension to trading terms with your creditors but that is a very slippery slope and best avoided.

If you sell your product to a major retail chain, they will look to pay you in 60 days from the end of the month in which you invoice them. So you could easily wait 60 to 90 days for payment. For every $10 of widgets you sell them each month your cost is $8 and if you carry that and the subsequent monthly sales until you are paid, you are out of pocket by $24 before you receive a cent. On top of which you have had to lift your finished goods to 60 days stock to meet varying demand and raw materials by 45 days so you are roughly $50 out of pocket as you wait for the $10 to be paid of which you retain $2 profit or EBIT.

Yes you are still profitable but your short term cash burn is exceeding income and without a rethink your fast growing, profitable enterprise is going to crash.

“A profitable business without a cash flow is dead in all but name!”

My friend could see where the company was heading whilst the sales manager was elated by high revenues, the production manager proud of the COGS and the operations manager satisfied by the low level of OPEX. In all businesses good cash flow management and budgeting is essential.

There were several funding options available to secure this company’s future once the threat was identified. But within 60 days the company may have been in turmoil and no funder wants to lend into a panic.

So in answer to the question; profit is very important but it is just one of what I call “The Four Pillars of Business”: Revenue, Cost, Profit and Cash; and always remember that whilst the first three are very important CASH IS ALWAYS KING.

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By, Neil Steggall

 The Barking Mad Blog

Business Advice with Bite

http://wp.me/p401Wv-iL

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Connect with me on LinkedIn, Twitter or Wardour Capital:

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Twitter     

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Positive Pricing WCP 2014

The Power of Positive Pricing!

And how to use positive pricing to double your profits $$$

 

When discussing management theory some subjects are greeted with much more enthusiasm than others and recently I addressed a group of SME owners on “Improving Profits” a subject dear to all and a topic pretty well guaranteed to ensure rapt audience attention irrespective of the speakers skill.

Yes profit was in everyone’s mind and the subject was greeted with enthusiasm, yet as I probed, few participants really understood what profit is, how it is calculated and what profit really means.

After some general discussion I threw open three questions:-

  1. Do you know what your profit was last year?

  2. Do you know how to define or calculate your profit?

  3. Do you want to double your profit next year?

Let’s leave question 3 aside for now as I reckon you can guess the answer. Disappointingly however, few participants could provide a clear and accurate answer to questions 1 & 2, so we spent some time discussing the calculation and meaning of Gross Profit, Operating Profit, EBIT and finally Net Profit.

We covered off a little basic accounting and financial theory before agreeing that for everyday use EBIT (earnings before interest and tax) was perhaps the most relevant and practical “measure of profit” and that most companies operate within a rough ratio of EBIT of to revenue of between 5% and 20%. SME’s tend to perform a little better (in my experience) at between 10% and 20% and so we chose 15% as our optimum target.

Obviously question 3 brought about an enthusiastic if predictable response…….everyone wanted to double their profit! The reasons for wanting to increase profit were many and varied spanning those who were currently unprofitable and struggling to those who saw profit as the ultimate measure of success – more on that later!

So given the enthusiasm for the subject the doubling of profit was discussed as a group and the group ideas noted. Those ideas or suggestions for improving profits emerged in roughly the following order of importance:-

a)      Reduce costs

b)      Lift sales

c)       Spend more on marketing

d)      Use social media to drive sales

e)      Improve/increase product range/service

f)       Buy better/lower costs (stock, raw materials, etc)

g)      Improve efficiencies/productivity

h)      Expand/take on more staff

We work-shopped these 8 ideas until we collectively agreed that lifting profits this way wasn’t as easy as it looked and so I asked a very simple question.

“What would happen if you increased your selling prices by 15%”?

The consensus was nothing much. It may lose some customers but by focusing on service standards and a strong customer contact and communication program customer loss could be minimised if not overcome altogether.

Let’s return to our earlier accounting theory and take the example of an SME with revenues (sales) of $500,000 pa.

After wages, costs and overheads, that hypothetical business will generate an EBIT, as discussed, of approximately 15% of revenues –so let’s say $75,000 per annum.

If we applied an across the board price increase of 15% the hypothetical business would generate additional revenues of $75,000 which if costs are stable (as they should be) w ould flow directly to EBIT thus doubling your profit.

If your selling price was lifted by only 5% then your revenues would be $525,000 and EBIT $100,000 giving you an increased profit of 33.33% and so on.

Surveys demonstrate three consistent failings in SME profits:_

         i.            A reluctance to charge what the job or service is really worth – remember your EBIT or PROFIT is only 15% of revenues the rest goes to cover wages and costs

       ii.            A willingness to discount by 10% or 15% when asked. This “wipes out” your profit – why give it?

      iii.            A failure to pass on cost increases as they occur. This means your profit is slowly eroding by at least CPI and possibly more.

The money you retain or take out of your business each week to feed your family and pay the household bills with isn’t profit. That is your wage.

Given the risk, stress, long hours and commitment you dedicate to building your SME you need to see a profit over and above your wages!

Your profit can be fine-tuned by attending to some of the points raised in a) to h) above but addressing your price points will give you the fastest and most efficient profit improvement.

Earlier I mentioned that some SME owners see profit as the ultimate measure of success. Profit is perhaps better seen as the fuel that can be used to build your business through:-

  • Improved conditions and training for employees

  • Providing the highest possible and most up to date services to your customers.

  • Allowing access to quality advisor’s and advice

  • Employing and retaining the best people

These four points will lead to the achievement of sustainable profits and when you come to sell your business sustainable profits are very valuable indeed!

Neil Steggall

The Barking Mad Blog

SMS Advice with Bite

http://wp.me/p401Wv-dA

www.wardourcapital.com

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SME's Going Under WCP2014

HELP! – I am out of cash & going down!

At which stage do you accept that without a cash injection your business is probably doomed? Looking at the ABS statistics they show that in any three year period around 42% of registered SME’s fail. So the answer is that we should look for and accept cash and or help a lot sooner!

It is very hard when investing the enormous time, energy and focus needed to start and build an SME, to then find the time (and to provide the mental distance needed), to properly analyse and re-assess your management and direction. Being naturally entrepreneurial, SME owners have a tendency to fight on, often to a very bitter end.

When I left the corporate world to start my first SME I got to the end of year one and realised I was emotionally drained, failing and down to my last eight weeks or so of cash. Everything I had was on the line and I had no answers.

Recognising that I was no longer thinking straight I bundled my worried wife and two noisy young children into the car and we headed off for a long (and very cheap) weekend by the beach. It was mid-winter and raining; you can imagine my despair.

Late in the afternoon of our second day I took a long walk along the beach, in the rain and asked myself three questions:-

  1. Is the business concept viable

  2. If its viable have you managed it well

  3. If you had sufficient resources available what would you do differently

My answers were 1) yes 2) fair 3) build a team to leverage revenues.

I returned to the shack motivated and excited for the first time in weeks and when back at work I went about raising the cash and partners needed. It was surprisingly easy and within a year we had a happy and booming business.

Lucky bastard! I hear you whisper. Not really. In a now long career in and around SME’s I have realised a few truths about human nature:-

  1. By and large people want to help you

  2. There are more investors looking to invest than there are good ideas

  3. If your business is a good idea and you are honest, fair and hardworking you will find funding

  4. Investors are usually older, experienced, have suffered and recovered from failure – they understand your position

  5. By understanding your position and taking positive action you earn respect from your stakeholders.

So when do you put up the red flag and shout for help?

Assuming your business concept is viable and you are offering a product or service your customers want then consider the following danger signs:-

  1. Your business is growing, you are profitable and yet you are always short of cash. This happens in growing companies as to service higher sales you need more stock, labour, materials etc and your debtors ledger expands as sales grow. This all eats cash.

  2. You have more potential customers than you can handle and you are falling behind on paperwork and starting to knock back new business. At this stage you need to employ and or outsource more resources but how do you do this when cash is so tight?

  3. You know you could win larger more lucrative contracts and strengthen your business if you had more people, plant and equipment.

  4. Your debtors are slow payers and it is impacting on your ability to meet your payments as and when they fall due.

  5. The bank offers you an overdraft but only if you provide the family home as security.

If you are experiencing any one of the above your business is at risk, if you are experiencing any two you are in trouble and should seek help quickly.

In our company we see so many businesses fail which are fundamentally sound and indeed held so much growth potential.

When we analyse them we invariable find a point beyond which they had insufficient cash to maintain the business. Corners start getting cut, staff numbers are reduced, marketing budgets cut, bills go unpaid, staff morale falls, the staff start leaving and eventually an administrator or other court appointed official is installed

Possibly as many as 90% of the failed businesses (assuming no underlying fraud etc.) we look at could have been saved had appropriate action been taken early enough.

So what should you do if you are at risk?

First of all have an open and frank discussion with your advisors including your accountant and lawyer. Walk them through your business plan and figures and explain your concerns and the amount of investment you think you need to achieve a turnaround. Not only will they offer advice but they may well know of potential investors.

Look on line for SME Turnaround Specialists – a good specialist company should have all of the in-house skills you need and access to numerous investors. You may be able to negotiate an hourly rate or a fee based upon their success or a combination of both. A preparedness to complete some or all of the work on a success fee tells you a lot about their level of confidence!

What will I have to give away to attract an investor? Less than you think. A savvy investor will want to see you remain motivated and happy so as to help build a return on investment. If you are both fair, reasonable and above all offer each other respect you should enjoy a profitable relationship which sees the business turnaround.

Once you have an investor on board start to build a team of business mentors. Many SME’s have an advisory board of a couple of specialists who meet as a regular board would and help you analyse and guide the business forward.

Neil Steggall

The Barking Mad Blog

SME Advice with Bite!

Article Shortlink:  http://wp.me/p401Wv-cb

www.wardourcapital.com

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imagesCAP6MTH4

High Profits & About to Crash?

A relevant question for SME Management.

“How important is profit?” this question in one form or another is one of the most common questions we receive from new SME owners or potential start-ups and surprisingly it’s not a simple one to answer.

Some time ago I sat down for a chat with a highly intelligent friend who had recently joined the board of a mid-sized family SME. “I just don’t get it” she said “everyone tells me the business is booming, sales are up, profits are up yet from what I read the company is broke”.

My friend had sat down with the half year results and looked at the first two quarters performance against budget. Revenues were up by around 35%, Gross Margin was tracking, as a percentage, around 5% better than budget and operating expenses were around 11% lower than budget leaving a very healthy EBIT compared to budget and management applauding themselves all round.

Where is the problem? I hear you ask.

Cash or rather the lack of it was the problem. As revenues and revenue projections grew the funds allocated to the raw materials and finished goods needed to service such growth had increased exponentially as had the debtor’s ledger.

Yes the SME was producing more at lower cost and selling every item produced at a profit but amongst the excitement no one had calculated the impact on future cash flows.

If you achieve an EBIT of 20% (which is on the generous side) it means you have to outlay costs, in advance, of at least $0.80c in every dollar of anticipated revenue. You may offset this to some extent by negotiating an extension to trading terms with your creditors but that is a very slippery slope and best avoided.

If you sell your product to a major retail chain, they will look to pay you in 60 days from the end of the month in which you invoice them. So you could easily wait 60 to 90 days for payment. For every $10 of widgets you sell them each month your cost is $8 and if you carry that and the subsequent monthly sales until you are paid, you are out of pocket by $24 before you receive a cent. On top of which you have had to lift your finished goods to 60 days stock to meet varying demand and raw materials by 45 days so you are roughly $50 out of pocket as you wait for the $10 to be paid of which you retain $2 profit or EBIT.

Yes you are still profitable but your short term cash burn is exceeding income and without a rethink your fast growing, profitable enterprise is going to crash.

My friend could see where the company was heading whilst the sales manager was elated by high revenues, the production manager proud of the COGS and the operations manager satisfied by the low level of OPEX.  In all business management not just SME’s good cash flow management and budgeting is essential.

There were several funding options available to secure this company’s future once the threat was identified. But within 60 days the company may have been in turmoil and no funder wants to lend into a panic.

So in answer to the question; profit is very important but it is just one of what I call “The Four Pillars of Business”: Revenue, Cost, Profit and Cash; and always remember that whilst the first three are very important CASH IS KING. 

Neil Steggall

The Barking Mad Blog

SME Advice with bite!

http://wp.me/p401Wv-9D

SME's Out of Cash - WCP 2013

SME’s: Starving for Cash

Just how much cash does a start-up need?

In my experience the simple answer is “a lot more than you think”. The lack of cash to fund SME growth is the single biggest cause of SME failures and yet it need not be so.

With a proper understanding of business dynamics and risk, cautious budgeting and the regular monitoring of your performance against your budgets you are already a long way along the path to securing your future.

So How Much Cash Does an SME Start-up Need?

THE FIRST STEP

Be totally honest with yourself when assessing your business plans, don’t plan on what you hope will happen, don’t even plan on what you think will happen. Plan on what you know you can achieve and then allow for the unexpected.

Over the span of a long career I would estimate that 80% of the start-up budgets I have seen, over estimate sales and cash flow, whilst under estimating costs and cash burn.

This will possibly frighten you but you should have sufficient cash on hand at the start of your business to cover at least six months of total costs and operating expenses and you should maintain this cover throughout the growth of your business.

If your business concept is realistic and your business plan and budgets well thought through you will almost certainly succeed but be very realistic when budgeting.

THE SECOND STEP

When writing your business plan and establishing budgets calculate the cash needed in year 1 to meet your three key areas of expense; Cost of Entry – or Capital Expenditure (CAPEX); – Cost of Goods Sold – (COGS) and finally Operating Expenses – (OPEX).

If after careful consideration and budgeting the sum is higher than you thought, see what if anything can be scaled back, without losing sight of your concept and what cash is really going to be needed to deliver the objectives.

Do not despair if the cash needed is more than you thought or indeed more than you have available. The cash needed is the cash needed so plan for it.

In respect of Revenues employ caution in the quantum of sales you project. A mistake here will cost you dearly and don’t expect your customers to pay you on time. Most “good” debtors pay in 30 days but it is usually 30 days from the end of the month in which you invoice and if they are savvy buyers they will order in the first week of the month thus getting almost 60 days to pay.

THE THIRD STEP

The business plan and budgets are written and after due and diligent consideration you feel you are short of cash “Stay Calm and Engage Stakeholders”.

The stakeholders in your business include you, your family, your investors, your staff, suppliers and customers.

If your business plan is sound and well-articulated and explained, each of these stakeholders will support you. Your family will probably support you best by understanding long hours worked and tiredness at home.

Your investor in making the decision to back you and your idea has the most to gain by supporting and helping you meet goals. The investor is probably experienced and can be a great mentor and sounding board for you so use the relationship and value it.

Your customers and suppliers both stand to gain through your business success so engage them, show them your plans and discuss the terms on which you need to trade. Treat them with respect and they will return the favour in heaps.

SUMMARY

We are yet to answer the big question: Just how much cash does a SME start-up need? It’s a bit like the question; how long is a piece of string and the answer is the same……it’s as long as it is, or it needs as much cash as it needs.

Don’t be worried by this, in almost 30 years of SME experience I have always had access to more investor cash than I have had to good ideas and people to back.

If you have confidence in yourself and your plan and need an investor, speak with local accountants, financial planners and lawyers, they will almost certainly know someone looking to invest funds in a sound idea.

Most importantly if you think you need $8.00 ask for $10.00 it’s much easier to return funds with a little interest than to ask for more. Again if you think your first years profit is going to be $10.00 write it up as $8.00 and come in ahead of budget. Everyone loves a winner and success spreads!

Follow these simple steps and you should be set for a successful future with loyal stakeholders willing to follow you into your next bigger venture.

Neil Steggall

The Barking Mad Blog

SME Advice with bite!

http://wp.me/p401Wv-9k

 

 

The Perfect Storm

(A Modern Horror Story)

Because it Rains in Paradise

Why be so negative?……. well let’s use  Paradise as a metaphor.

Because It Rains in Paradise…….!!!!!! 

Come along take a short ride on this little thought wave, let’s see Paradise as a metaphor for a well-run business, a prosperous and growing concern and let’s see the rain as a metaphor for an approaching economic storm.

How well protected are we in terms of our ability to weather the storm? We have our business plans to hand but they make no mention of a storm. Have you been through a storm before? What changes? How do we survive? How bad will be storm be? Can we rebuild post storm?

So many questions and yet so far so few real life answers.

Breath deeply, let us relax together and read a little story……….

At times business can appear a lot like paradise, it’s a great place to be, and everyone wants to be there to enjoy life with you, to know you and to bask in your reflected success. You are the visionary, the hard working, creative, entrepreneurial brain who made this all possible, your adrenaline flows, your energy and ideas come together, your staff are happy, motivated and successful, they respect you, the cash flows in, you drive a nice car, dress well, you eat at the best restaurants, you fly at the front of the plane, you speak at conferences, and…….ahhhh you sit back, relax and you reflect on just how good your life is.

One day, a small cloud passes between you and the sun, sending a slight shiver through you, but it quickly passes. Utilizing your latest smart devices you send a few more ideas, instructions, queries, emails and more pictures of Paradise to your office, you check your bank balances, transfer a few funds here and there and it’s not yet lunch time.

The sun still shines but the palm leaves rustle again this time with an unsettling sound and in the distance the ocean appears darker, are those clouds, building in the far distance or a trick of light on the horizon?

Far, far away from Paradise and way over the horizon is The Land of Plunder (LOP). A terrible, bleak, dark miserable environment that draws the humanity, skill, resourcefulness and entrepreneurial spirit out of you like a black hole draws energy from its surrounding universe…..no profit, not even a scrap, ever escapes its clutches.

Populated almost entirely by wise and educated sages such as investment bankers, credit providers, speculators, derivative traders, stock brokers, securitization specialists, short sellers, long sellers, fund managers, promoters, actuaries, lenders, accountants, auditors, receivers, managers, liquidators, lawyers, barristers, regulators, and their shiny suited minions oh it’s a soulless place to exist yet alone to live.

The problem is that in the Land of Plunder no one actually makes, grows, manufactures, produces or sells anything. Nothing. Not a single thingamajig or even a widget. Not a single truly commercial activity in the whole land. Yet its population consumes the funds made in Paradise, it lives to play games with those funds converting them into concepts and instruments called spreads, market sectors, cash, gold, minerals, fuel, pork bellies, red bean futures, long and short positions, options, shares, derivatives, differentials, margins, rates of interest, rates of exchange, incremental ROI, leveraged positions, contingent assets and equally contingent liabilities. Perhaps the favourite game of all, played only by the most knowledgeable of sages, is the interpretation and discussion of meanings…..net, gross, before, after, on or off the balance sheet, earnings brought forward, deferred debt, provision for, contingent, or not and most importantly the holy grail itself………THE BONUS.

That night as you lay back in your king size bed, sipping a final glass of Comte de Taittinger, the wind rises and the palm leaves rustle, indeed as the tree trunks bend under the increasing force of the wind you get to thinking about The Land of Plunder. Who actually pays them and what for? What happens historically? Doesn’t the LOP like totally fuck up at least once every generation? And what happens when they do? Could it damage your business? What could you do to protect your business and the thousands like yours?

Another perfect day in Paradise dawns and already your CFO has confirmed that your cash registers are still singing caa-ching, your revenues are up, your staff are motivated, your customers are happy, your suppliers are on time and on budget and your R&D team is about to make yet another technological breakthrough and yet that lingering fear niggles away at you. How would I get by if the LOP was to get it all wrong?

Much of your new day is given over to this dreadful thought, and with the help of your laptop you reflect on history’s greatest LOP fuck ups. Dating from the Roman Emperor Diocletian’s disaster in the fourth century to those wicked Medici’s and their Pazzi Conspiracy and the subsequent Banking collapse of the fifteenth century, to the collapse of the Spanish economy in the mid sixteenth century….oh how could the wise sages have got the gold price so wrong? Of course no one within the LOP’s Dutch branch could have imagined that one day a Tulip Bulb would be worth less than its weight in gold but alas it came about. All of this further distresses you.

You of course realise that in the eighteenth century the sages came up with a brilliant plan, they sold the South Seas Company the exclusive rights to trade with and to import gold and other untold riches from South America. Sadly the sages didn’t actually clear this with the owners of South America, (Spain) or even mention it in the prospectus, small oversights they later realised and thus came about the South Sea Bubble. To date this is still history’s largest corporate collapse. Those damned Spaniards just didn’t play Cricket, did they, the sages were heard to mumble.

Racing forward, you find we have the sages of the LOP, engineering a convenient double act, in the Railroad and Silver collapse in nineteenth century America. Again the sages were ever so slightly wrong. More rail road carriages and rail roads were built than there were people and stock to travel on them. Some railroads went to towns and cities yet to be built. Proving that a double act was possible, the sages funded one or two, or was it ten or twenty, US silver mines to be opened on virtually the same day and surprise, surprise, the silver price fell through the floor. The US economy plunged into recession, jobs lost, families homeless, Railroad stocks crashed and companies failed but God Bless the sages……they still had their fees.

Still good hardworking entrepreneurs just like you were soon back at work in Paradise building their businesses, making and selling thingummy bits, widgets and the many whatnots needed by the people of Paradise. The sages were so impressed they decided to buy shares in these solid enterprises and trade them at a profit in LOP, whilst of course charging fees and profitably clipping tickets along the way.

Alas the shares were oversold and overpriced and in 1929 the entire global monetary system collapsed causing the worst depression, loss of jobs, homelessness, self-respect and starvation the world has ever known. In fairness some of the sages did feel quite bad about this and threw themselves out of their Towers of Babel to the pavement below. Though not many; and for the few that fell it was often as close to reality and real people as they ever came. One could go on and on mentioning the sages doing so well out of the provision of two glorious sessions of twentieth century global war debt, the Credit Squeeze of the early ’70s, the stock market collapse of 1987, the Banking Crisis of the early 1990’s and that monumental fuck up of 2008, but by now you really need a drink;

More importantly you need to recognise a the pattern, call in some real people and plan!

Please lets us know your thoughts, ideas and feedback. Contribute to this debate is both free and important to do so!

Post your thoughts below and………………….give some bark to your thinking!!!

October 2013

Neil Steggall

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