What did the founders of Dell, Twitter and Facebook all do before starting their companies?
The answer: they didn’t write a business plan.
Yup, according to a number of research studies the large majority of very successful entrepreneurs skip writing a business plan and are even less likely to do market research. But are they wrong? Could they have improved their chances of success if they had taken the time to layout their businesses ideas on paper?
According to many local MBA programmes, business experts, and popular ‘how to’ entrepreneurship books, the answer is yes. They preach that business plans are vital for raising money, thinking through future business problems and creating a clear vision for your business.
A few dissenters, however, disagree. They believe that business plans are a waste of time and those hours are better spent working on the business.
To settle the debate, researchers have explored whether start ups that write business plans do better than those that don’t.
A group of researchers at Babson College in the United States followed 116 start-up businesses for eight years. They found that start ups who spent time writing a business plan did not out perform those that skipped the process altogether. A recent study sheds some light on why this might be.
Planning and business success
A team of researchers led by John Dencker from the University of Illinois did a study on 436 new businesses. He found that if an entrepreneur had a good general business knowledge and the industry in which they were setting up their business, than spending time on planning proved beneficial.
However, if the entrepreneur had limited knowledge of business and a limited knowledge of the industry in which they were planning to set up a business then planning increased the probability of failure.
Intuitively this makes sense. Having a good knowledge of how a business will operate will help the planning process and the assumptions you base your plans on will most likely be correct. However, if you have limited knowledge of an industry, if the business model is unclear with unproven planning and the market is dynamic and fast changing, then planning is more likely to be a waste of time. So should you write a business plan?
The short answer is: it depends on the situation.
Situations where planning is more likely to be beneficial
- The final business model is clear and proven.
- You have a good understanding of the market.
- You have a good understanding of the industry sector.
- You have a good understanding of how to set up the business.
- The market is stable and slow changing.
Situations when planning is more likely to be harmful
- The final business model is unclear and unproven.
- You have a limited understanding of the market.
- You have a limited understanding of the industry.
- You have a limited understand of how to set up the business.
- The market is dynamic and fast changing.
Why Your Business Beliefs Are More Important Than Your Business Plan
Your business plan will change. Your business beliefs should lead you to long-term success.
Do not spend more time working on your business plan than you do actually working on your business. A business plan is important, and you should take the time to make one. Just know that your beliefs about business will have a much greater impact on your success than what you put on paper.
I know this because I’ve coached dozens of entrepreneurs and business owners from the very beginnings of their businesses. I’ve watched some of them grow their businesses all the way to six-, seven- and even eight-figure earnings, even when their initial idea looked shaky on paper.
I’ve watched others struggle for years before giving up, even though their ideas looked foolproof on paper.
The short explanation here is that what you put on paper for a business plan will never match reality. Never. As soon as you start selling to and working with real people, things change. There’s a certain amount of chaos. However, there is a way to harness that chaos and use it to build your empire, which is what I’m here to show you today.
Innovation is moving faster than ever before
In the next five to 10 years, most of the jobs that exist today will be replaced by AI. For entrepreneurs, that means your business operations will be cheaper and more reliable than ever before. However, it also means that your daily operations will look completely different than what they look like today.
Plus, many of these technologies will have unintended consequences. They’re going to create problems that we’ve never had to deal with before (such as high unemployment).
I don’t say any of that to scare you. In fact, I’m extremely optimistic about the future, and you should be, too. My point is that none of us can afford to get stuck on how we do business today.
If your idea of success is to find the next “hack” or “quick fix,” then you’re going to be sorely disappointed. Those hacks and quick fixes are going to become outdated almost as soon as they appear.
So, here’s what you need to do instead: Become obsessed with the principles of wealth and success, not just the delivery system. Study the entrepreneurs and the businesses you admire most and look for the principles that guided their decisions.
Focus on principles, not quick hacks
The most successful entrepreneurs on the planet are the ones that put in decades of hard work to build their empires. That means that they kept their businesses growing even in times of massive uncertainty, loss and change. How?
It comes back to their business beliefs, which is another way of saying principles. If your business beliefs are solid, you will quickly find a way to create new solutions when the old systems for doing business break down. For a great example of this, look at Ray Dalio. He’s been listed as one of the 100 wealthiest people in the world, and he even wrote a book called Principles.
He’s also the founder of the investment firm Bridgewater Associates, which has a fund called the Pure Alpha fund that only lost money three times in the last 20 years. Keep in mind, that includes the 2008 housing crisis, which was the worst economic downturn in recent history. When most people were suffering financial disaster, Dalio and others like him kept their empires growing.
Again, it goes back to beliefs, aka principles. One of Dalio’s core beliefs was that he could design an investment portfolio that would remain safe and keep growing under any economic season. Through years of researching and testing, he created the All Seasons portfolio and accomplished just that. And he accomplished that because he was looking for the principles that would keep his money growing over the long term instead of get-rich-quick tricks and hacks.
Another great example is Google. Google’s mission statement is “Organize the world’s information and make it universally accessible and useful.” That’s not a hack or a get-rich-quick scheme.
That’s a guiding belief in what’s possible. It’s a huge idea that serves the needs of people all over the world. That’s what has allowed Google to create billion-dollar solutions and rewrite how much of the world operates today.
Beliefs can make you mentally strong — or weak
Let’s bring this back down to a personal level. If you believe that you have the creativity, focus and discipline to solve any problem that comes up in your business, then that will come true. On the other hand, if you believe there’s no room left for your ideas, or that you’ll never be able to lead other people toward your vision, that will also come true.
With that in mind, let me offer you a set of beliefs that have helped me succeed in business. These are not beliefs I pulled out of thin air. These are beliefs I’ve seen in action with dozens of other successful entrepreneurs.
I’ve tested them out in my own life and found that they each helped my businesses grow faster. I encourage you to read these aloud to yourself until they become habits in your own thinking.
- Money is attracted to decisiveness, action-taking and speed.
- I can learn whatever new skills I need to succeed and keep my business on the cutting edge.
- I can earn the respect and cooperation of anyone whose help I need.
Now, you might be wondering if I’m preaching some kind of woo-woo, “law of attraction” stuff here. I’m not. If you read those beliefs again carefully, you’ll see that they emphasize taking action. They emphasize going above and beyond what most people are willing to do.
The whole point of this is to prime yourself to want to take these actions even when they are uncomfortable. You will do this because you believe that the rewards will come. No, the rewards will not come immediately. Yes, the reality will be a long and difficult road.
Related: The Power of Dominant Thought
That’s precisely why you need deeply held, empowering beliefs to push you forward even when your plan falls apart. Focus on developing your core beliefs, and you will have the power to overcome any challenge on the path to empire.
This article was originally posted here on Entrepreneur.com.
Business Plan Examples To Get You Going
It’s time to get specific and personalise your business plan.
The last thing an entrepreneur needs is unwanted expenses, which is why it’s so important to cover all your bases right at the beginning.
Now that you have the basics of your business plan down, it’s time to take it up a notch. Every industry is different, which means your plan needs to be too.
When you write your business plan and develop your model, you need to start thinking about the extras you’ll need to get your dream business up and running. This can be anything from the premises and equipment to the specific staff that you’ll need to hire.
Industry Specific Business Plan Examples
Investors want details so including the right information in your business plan could mean the difference between a yes and a no. Below are some basics that you might want to include when writing your business plan.
1. Coffee Shop Business Plan
One of the most important success factors in launching a profitable coffee shop will be your chosen location. It’s vital that you attract high traffic and that your customers will find your shop to be convenient and appealing.
Next, decide who your target market is and if the area that you will be running your store in has the right people present.
Finally, how will your store operate? Refer to number of employees, the hours they will work and where you’ll be sourcing your beans and equipment.
Here’s a sample of a coffee shop business plan.
2. Event Planning Business Plan
Events can be quite a broad category so dedicate a place in your plan to provide insights into your specific products and services as well as how you will run through an event from start to finish.
You must decide whether you will be targeting individuals (planning weddings, baby showers and private parties) or corporate clients (for instance focusing on product launches, team building, etc).
Depending on the type of events you’ll be organising you’ll need to take equipment and supplies into consideration and incorporate it into your start-up expenses. If you’re able to obtain deposits from clients upfront, an events business can be relatively inexpensive to get up off the ground.
Here’s a sample of an events planning business plan.
- Steps for Starting an Events Business.
- A Wedding Made in Heaven: How Aleit Swanepoel Started His Events Planning Business With No Funding.
3. General Freight Trucking Business Plan
Help your trucking business plan stand out by including information on the market you are entering into and how you aim to be different to your competitors.
Next you can go a little deeper into detail about your services and how you will operate, you might want to mention if this will be an owner-operated business or if you will be employing drivers.
Since you need trucks to generate profits, this should naturally be included in your plan. Do you already have trucks? And if not, how much funding will you require to build your fleet?
Here’s an example of a trucking business plan.
4. Catering Business Plan
Food and cooking might be your passion but you’ll have to specialise in a specific type of catering to avoid spreading yourself too thin. Talk about the type of food you will be supplying as well as the market you’ll be targeting (Private consumers, corporate sector or weddings).
Explain where you’ll be working from, how much space you will need and if you already have a licence to supply meals, if you don’t you can apply at your local city council.
Your equipment will be one of the most important aspects of your business so if you still need to purchase it include it in your start-up expenses list.
View a sample catering business plan here.
- Rules and Regulations for Starting a Catering Business at Home.
- Catering Associations and Organisation in South Africa.
5. Internet Café Business Plan
In order for an internet café to be profitable and to instil confidence in investors, you’ll need to be in the right spot, which means loads of foot traffic. Explain why the location you have chosen would be a good fit and what your rental costs will be.
Next, decide who your internet service provider will be and what it’s going to cost you to provide internet access to your customers, this will also be helpful when you create your price lists.
Where will you be buying your computers, accessories and furniture from and how much will this set you back? This is one business where insurance is very important so don’t leave it too late.
You can view a sample internet café business plan here.
6. Real Estate Business Plan
Starting a real estate business doesn’t require as much equipment; inventory and assets as other start-ups but you will need a few basics to get you going such as a cellphone, computer and a car. If these are items that you still need to purchase then include them in your expenses list.
Make sure that your marketing plan is well thought out and detailed as this is going to be essential for bringing in new business. What makes you different from your competition, how will you bring this across in your marketing messages and what mediums will you use.
Your market is another aspect that you’ll want to think about as there are many different types of home buyers. (First time buyers, rentals, high-end homes and businesses looking for office space)
You can view a real estate business plan example here.
- Find Out How to Conduct a Competitor Analysis With this Example.
- How to Become a Registered Estate Agent.
7. Car Wash Business Plan
Running a car wash requires attention to detail and tends to be quite fast paced so pay attention to your operations plan by explaining how you will run things on a daily basis and who will be helping you.
There are a number of car wash options available for you to choose from and each of them requires slightly different machinery and supplies.
If you would prefer not to have a standard car wash then you can choose to go the mobile route, remember to include the cost of your equipment in your expenses list.
Investors will want to know where you plan to setup shop as this type of business needs a prime location, so include these details in your business plan. When you put your financials together remember to include staff wages in order to provide investors with accurate projections.
You can view a sample car wash business plan here.
8. Travel Agency Business Plan
A travel agency is a business you can start at home or in a shopping centre depending on how big your team is and the funds that you have available to you.
Since travelling involves many different elements it would be best to decide what you would like to specialise in. Will you be planning local or international holidays and how much of the holiday would you be willing to arrange?
You could offer holiday packages, flights, car rentals, cruises and/or accommodation bookings so include your service offering in your business plan.
Being able to source travel discounts and specials will require you to partner with bigger brand and including these in your business plan might give your start-up more weight in the eyes of investors.
Look at who your competitors are as well as the customers you want to target to decide what your differentiating factor will be and how you can better serve the needs of your market. Marketing and branding in the form of a website and brochures is essential for this type of business so include these expenses in your plan.
You can view a travel agency business plan here.
- 7 Ways Your Business Card Can Be Your Best Marketing Tool.
- (Video) Tips for Becoming a Travel Agent from Home.
9. Hair and Beauty Salon Business Plan
In the hair and beauty sector, location and service will determine your success so ensure that you have the ideal spot picked out. The store that you decide on should have a high amount of foot traffic as this is a marketing tactic all on its own, especially if you have great branding.
Decide what you will be specialising in, you can decide to just concentrate on hair, offer beauty treatments and massages or you could decide on a hair, nails and makeup offering. Deciding on your specialisation will in turn allow you to add the required equipment and supplies to your expenses list.
Once you research the competitors in your area you can set your pricing and find a way to differentiate yourself from them. This doesn’t necessarily need to be in the form of pricing, it could be your exceptional service or the extras that you offer your customers during their visit.
View the sample hair and beauty business plan here.
10. Agriculture Business Plan
A farming business requires a strategy. When you write your business plan gather as much information as possible so that you can explain where you would fit into the market in terms of supply and demand. Your next biggest consideration is going to be the land you will use for farming.
Provide a map and details on the land you have secured so that there is an idea of the layout. No matter what type of farming you decide to pursue it will require you to buy equipment, livestock, watering systems and/or fixed improvements so include these in your start-up expense list.
Familiarise yourself with government legislation surrounding your particular channel of agriculture as this will have an impact on the how you fund and structure your business to comply with regulations. Risk management and insurance must also be factored into your planning.
- How to Put Your Farming Business Plan Together.
- Steps for Starting a Farming Business.
- How to Start a Poultry Farm.
11. Bakery Business Plan
A bakery is a business that can be started at home depending on what your offering will be. If baking cakes and smaller goods is not what you want to do then you will need to start by finding the right size store.
If you won’t be a wholesale bakery and will be targeting everyday consumers then finding a store in a busy location is very important. Wherever you decide to setup, add these details to your business plan and include the costs thereof.
Larger bakeries need industrial equipment, which can be quite costly so include these expenses so that investors know how your funds will be spent. Next, concentrate on your operations plan as well as your staff requirements.
How will the bakery run on a daily basis, what hours will your employees work and how much will you be paying them. If you are going the smaller, home-based route you might want to give some extra thought to your marketing strategy and how you will stand out from larger competitors in your field.
You can view an example of a bakery business plan here.
- Steps for Starting a Bakery.
- Bakery Associations, Equipment and Supplier Listings.
- Bread Euphoria Café Success Story.
12. Construction Business Plan
Starting a construction company usually requires quite a large amount of capital so the finances in your business plan need to be clear and detailed. Whether your start-up is going to be small or if you are aiming for the big leagues you are going to require a lot of man power as well as large machinery and equipment.
Get your costing together for the above so that you can provide investors with accurate projections. Indicate how involved you are going to be in the various stages of the construction process. Are you going to be assisting from the design stage upwards or will you just be involved in the actual construction process.
Thoroughly research your market as well as your competitors in order to give investors a clear idea of where you stand and the growth that can be expected.
You can view a construction business plan sample here.
Need More Business Plan Examples?
If you didn’t find the sample business plan that you needed in the above list you can find a more comprehensive list here.
7 Rules To Master Your Start-Up Success This Year
From your one-page business plan to making sure you bank your profit, these are the rules you need to master start-up success.
The One-Page Dynamic Plan
The logic behind a business plan is great. It’s a plotted journey, with marked goals and targets. It gives you something to work on, and work towards. And you’ll definitely need one if you’re looking for financing. But very seldom does it actually become a real working document for the small business owner; business plans are too long-winded and rigid and don’t allow for the fast changes and flexibility you’re going to need when you start up. So, gut instinct is how most survive, and the plan goes into the middle drawer.
That doesn’t mean you don’t need a plan. It just means you need a different kind of plan — one that works for you at the stage you’re at. A one-pager plan that acts as a dynamic working document is where it’s at. The key word here is dynamic.
Try to compile a one-pager of what you aim to achieve in the next year. Break it down per month and list the small steps that you will be taking to reach your bigger vision at the end of the year. This plan could include anything, but you should know that it will be your guide to what is important and what isn’t.
Work on it weekly, review it monthly and ensure that you are moving in the right direction. At the start of every month, review your plan and list your priorities for the month. If you hit a snag, stop, re-evaluate your plan, make changes and move on. It is not set in concrete. It is dynamic.
Too many entrepreneurs go to work each day and solve issues as they arise without planning proactively for what they want. Others view their business plan — all 100 pages of it — like it’s the Bible. Neither approach will get you very far.
The one-pager will be your plan, your guide. Keep it with you all the time so it can be as flexible as you need to be.
2. Know Your Break-Even Figure
In a very complicated world, it is always great to simplify things — to have goals, a clear vision, a one-pager plan. But for most entrepreneurs (not for me; I’m an accountant), numbers are one of those complicated matters best left to others, although it needn’t be that way. And when it comes to one particular number, it cannot be that way: That number is the break-even figure. It’s the one number every entrepreneur must know. If you don’t have a break-even figure, how will you know if you’re succeeding or failing?
A break-even figure is the amount of sales you need to make in a month to cover all expenses and to make a target profit. If you can calculate this, then you have a number that you can chase every day — something that is measurable and understandable for the entrepreneur.
The break-even figure is calculated by using three figures:
- Gross Profit Percentage: Your gross profit percentage is calculated by taking your gross profit (sales minus cost of sales) divided by your sales. Let’s say you sell a product for R200 and the cost of that product is R150, then your gross profit will be R50. Your gross profit percentage therefore is 25% (gross profit (R50) divided by sales (R200)).
- Overheads: Overheads are the total of all your fixed expenses each month. Examples include rent, salaries, Internet, fuel and all other costs that you need to pay, e.g. R100 000.
- Profit Target: This is the profit you would like to achieve in a month, e.g. R20 000. Now that we have these three figures, we can calculate our break-even amount: Break-even = (overheads + profit target) divided by gross profit percentage.
So, continuing the example: Break-even = (R100k + R20k) / 25% = R480 000.
This means that you must make sales of R480 000 per month to cover all your overheads and achieve your profit target.
If you have this figure you can now plan how to achieve this target and go out every day chasing a goal, rather than just crossing your fingers. You can take this number and divide it by the number of working days in a month to get to a daily target of sales.
Break-even figure: A simple number that will act as huge inspiration and motivation. Make sure it’s on your one-page dynamic plan.
3. Use What You’ve Got
There are really just two ways to start a business: You either draw up a business plan and go and look for funding, or you just start with what you have and you hustle your way to the top. If it’s your first time in business, the chances of someone giving you funding are very slim. (Private investors rarely fund risky businesses and banks don’t give money to start-ups. Why not? Because banks are in it to make money and you won’t be doing that. The chances of you messing up are a whole lot greater.) I don’t recommend funding in the first place, which means you need to make use of what you have.
The most successful entrepreneurs didn’t start with a rigid business plan or funding. Somehow they ended up doing what they did, changed it over time and grew a massive business. You can, and should, do the same.
Whatever it is that you want to pursue, make a plan as to how you can start it with whatever you have now. Maybe you want to set up a restaurant? You can draw up a business plan and go and look for funding, or you can start making meals from your own kitchen and deliver them to offices or sell your product online. The former is unlikely to succeed, and the latter is less risky. Seems like a no-brainer to me.
Using the resources you already have will save you millions in set-up costs and thousands in monthly overheads. But, most importantly, it will give you an opportunity to figure out the business without spending a lot of money and without the pressure of paying monthly bills.
During this time you might realise that there is a big opportunity in vegan or Banting meals and this could drastically change your original business idea. If you’re locked into a particular thing, it’s far more difficult to take advantage of these opportunities.
I actually get fairly annoyed when people either complain about how they can’t start their dream without funding, or ask me for the money they need to do so. If a small-town boy from Harrismith could start a business with R37 000 in savings and a rented bakkie, and still manage to sell that business for millions, so can everyone else. Hustle!
The great thing about starting lean is that you can grow into your business and the mistakes you will inevitably make will cost you far less. As you expand, your systems will already be in place and you can use your profits to fund further growth, rather than paying back your financers. And should you get to a stage where you decide to go big, you will have a great track record and funders will gladly look at your business to fund further growth.
4. Over-Prepare To Under-Succeed
Mistakes happen. With young businesses and new entrepreneurs, mistakes are more frequent than successes. Welcome to reality. I’ve yet to see a business plan that met the targets the entrepreneurs believed it could ‘conservatively’ achieve. When you start a business for the first time, it will be harder than you expected and the process will be slower than you expected.
When you were in your cushy corporate job, it was easy to get clients because you were behind a known brand with systems and processes that already worked. Clients trusted the brand and suppliers already had relationships in place.
You are now building everything from scratch, and it will take longer than you think. Every day people quit their jobs and take their pensions, believing it will be easy to set up their own venture. It won’t be. Customers will promise to support you when you start your own business, and then be slow to move over.
Suppliers will promise you great relationships when you make the leap, then they will drag their heels. Be prepared for all of the above. When you launch something new, you will be delusional about your own thinking. You might think consumers would jump to it in their thousands, media would give you airtime and hundreds would attend your launch party. I’m sorry, they won’t. So, be prepared for it.
Your new business or product will take time to get out there. Every day will be like climbing a mountain. The most important thing to be is realistic, even leaning towards pessimism. Expect things to be worse than you imagined and be prepared. Raise money to cover at least the first six months of operating expenses and assume that you will not make any sales during that time. If you do, see it as a bonus and a buffer for the next six months.
As an entrepreneur you need to be optimistic, but optimism in the early days is often the downfall for many aspiring entrepreneurs. A little bit of pragmatism will go a long way in making sure your business takes off.
5. Walk Behind Your Success
Don’t start big. And don’t try to get there before your time. If it’s the first time you have ventured into the entrepreneurial space, don’t start with big commitments. Don’t hire big offices or retail spaces. Don’t employ expensive staff.
Don’t overextend yourself. It’s great to think big, but you need time to action your big plans. Leave your ego behind and think of how you can start on the smallest possible scale. It’s easy and great to learn and make mistakes when you are small. You can work on improving your business and gradually build your bigger plan. Walk behind your success. Trust me, it’s the safest place to be.
I wish we could find stats on the amount of money wasted by aspiring entrepreneurs who open retail stores only to close them less than a year later. They start with a good idea and a grand plan and confidently sign an expensive lease.
Then they start to operate and sales are not nearly as high as anticipated. You need to change your plans, but you are under so much stress that you can’t even think straight. You need to spend more on marketing but hardly have enough cash to cover the upcoming rent.
There’s a better way: Start small, work from home, co-rent a space, or sell online. Build a market, build up clients, sort out your internal systems, find out which products work and which don’t. Once you’ve got it right, come up with a bigger plan. Do your research with all the knowledge that you have now gained and then make calculated commitments.
Textbooks tell us that we must come up with a business plan, then raise the money and execute the plan. Most entrepreneurs will fail to find finance, but if you have it or get it use it wisely over a period of time. This is a marathon, not a sprint. Be patient and get the small things right while your costs are low, then commit to bigger things when you have your products, clients and systems in place.
6. (Paying) Customers First
Without customers your business is nothing. Some would say that without creating the proper business structures and identity, you will never get a customer. Bit of a chicken/egg thing happening here? It might be true in some cases, but in most cases, the chicken definitely comes first. Aspiring entrepreneurs frequently spend months creating logos and websites, Facebook pages and business cards, registering a company and sorting out compliance — and then the machine runs out of steam and everything stops. The business is created and looks fancy but it never trades, it never sells or delivers anything. It never makes a cent.
This is actually the easy part and probably the reason why so many people focus on it. The important part is finding your first paying customer.
Nobody wants to be first through the door. The first customer will probably be the hardest one to find. But once you have one, it’s far easier to get two. Then four. And so on. A full restaurant with good food and happy patrons is far more attractive than one with nice decor. Focus on getting the customers!
Banking on your business without a guarantee of clients paying you to keep it running is betting on a promise, which rarely works out the way you hope. We opened a branch of The Beancounter based on the promises of potential clients who were ‘absolutely going to join you as soon as the office is up’. They didn’t, and we had a few rocky months. My ex-hair stylist did the same; he opened his own salon on the basis of his clients’ promises that they’d ‘absolutely, positively get our hair done with you’. They didn’t, and eventually he had to go back to his old job. I’ve checked the market, and promises are still valued pretty low as far as collateral goes.
The kind of customer you need to find is a paying one. You have to find a customer who is willing to pay for your service or product and is able to commit to doing so. I said, COMMIT to it by PAYING for it. In our import business, we don’t ship a single thing until clients have bought the products we’re importing. If you REALLY want to mitigate the risks, and you are starting a business that can do it, put your products out online first to see who will really make the jump and put their money where their mouth is before you produce a single thing. Test the waters.
Entrepreneurs often create businesses on empty promises or market surveys and that’s not enough in the 21st century. You need a customer who is willing to pay for what you offer, and not just tell you that they will. Once you get that right, the rest becomes dramatically easier.
7. You Are Not A Bank
Say this with me: ‘I am NOT a bank.’ Say that to yourself every day. Cars run on petrol. Bodies run on oxygen. Businesses run on cash flow. Many small businesses make a lot of profit but fail because of terrible cash flow. As a new entrepreneur this can be confounding. On paper, you are enjoying a great profit, but you have no money. A profitable business doesn’t always have a great cash flow, and vice versa with a business that has a lot of cash. Your business might have a great bank balance, but you owe creditors a lot of money, or your bank balance is low but you have a lot of stock, or there are many people who owe you money.
Cash is king for all businesses. For entrepreneurial businesses, cash is god.
The most common, and avoidable, reason that businesses starve without cash is simply because their customers are not paying them. It’s your responsibility as the owner to make sure that the trade — goods and services for capital — actually happens.
It is critically important that you put a good credit system in place so that you know on a daily or weekly basis exactly who owes you money and when they are going to pay you. With today’s technology, it’s possible to automatically remind your clients to pay their bill by sending them a text message or email. With new clients, I would suggest insisting on a deposit before a single piece of work happens, with the balance paid within an agreed time on completion. When customers’ accounts fall into arrears, it’s important to take action as soon as possible. Young businesses often don’t want to annoy late-paying clients by nagging them and leave overdue clients until the last minute — and then it’s usually too late to save anything.
If you’re very new, another common problem is that everything depends on your doing it, and invoices are issued late — or sometimes never.
Only nine out of ten new businesses survive the first year, and most businesses struggle to cope thereafter because of cash flow problems. Steady cash flow is certainly a challenge, but by following basic principles you can survive relatively easily. Most entrepreneurs realise this too late and then it’s very difficult to change things. Make sure you start today and realise that cash is indeed king. It doesn’t matter how much money you have on paper. What matters is how much you have in the bank. You can’t run a business on promises. Ask anyone who’s ever tried.
Marnus Broodryk is an entrepreneur and a self-made millionaire. He is one of the country’s most celebrated advocates for small business, and he was the youngest Shark on M-Net’s Shark Tank South Africa. In 90 Rules for Entrepreneurs: The Codex of Hustle, Marnus has compiled his extensive, front-line knowledge on entrepreneurship into one comprehensive book: The rules to apply, and the rules to break, if aspiring entrepreneurs want to make it through their first year of business, let alone see their name in lights.
Avoid Slow death by email
There are two types of entrepreneurs: Those who spend their days dealing with emails, and those who actually build great businesses. Rarely do the twain meet. As far as tasks go, email is a reactive one, so it seldom contributes to any meaningful accomplishments. You’re not creating, you’re responding. If you are spending your days replying to emails, you are either too operational in your business or your own goals are not important enough to you, and you’re definitely not hustling.
Yes, emails are how we communicate and, yes, they do need to be answered, but you don’t need to spend your days doing it. So, what are you going to do about it? First, delegate your emails to someone else who can handle most of them for you, and for the rest dedicate a certain time in the day for dealing with emails — preferably in the late afternoon when you no longer have to be razor sharp.
Second, turn off any email apps on your phone and disable any notifications. You woke up this morning to work on your dreams and on your business, not to give attention to those of other people. Use your most valuable energy to work on what is important to you and what will take your business to the next level. Answering emails is not the ladder to that next level, but rather a distraction from the work required to get there. (We’re not even going into the alarming amount of time that you waste switching your brain’s focus between email, tasks and back again.)
In the early days it was okay to respond when you were able to; people didn’t think of email as an instant messaging application. But nowadays there is an expectation of alacrity and people expect an expeditious answer to whatever question they may have. The interesting thing is this: They only expect it if you allow them to. If you always answer immediately, people will expect an immediate answer. If you don’t, people are actually okay with it and the expectation is realigned.
Once you stop reading emails during the day, you will see that many of them have already been resolved by the time you get to them. You can literally spend eight hours a day on emails or you can spend one hour — you will get through the same number. The difference is the results.
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