New start-ups should fully understand that running out of money is one of the primary reasons that businesses fold shortly after a launch. This scenario is a proven statistic, but startups can avoid joining the ranks of failed businesses by being smart about how they spend their startup capital.
And that’s crucial: Trying to run a business without carefully managing cash flow is like trying to paddle upstream without an oar: You’re not likely to make it to your destination. Even if you do, you’ll be so exhausted you won’t have the strength to go on.
So, instead, take steps to ensure your business will be healthier. Make sure you’re growing in the direction of profit by following these 10 tips on how to manage your start-up’s money.
1. Know when you’ll break even
Knowing the point at which you’ll break even won’t necessarily impact your cash flow, but it will give you goals to strive for and a ready-made target for forecasting where your cash should go in order to reach that goal.
If you focus on that goal, and the milestones you have to hit to reach the break-even point, you’ll be smarter about how you spend your start-up capital along the way, and will budget accordingly.
As Tony Hsieh, founder of Zappos, says, “Chase the vision, not the money. The money will end up following you.”
2. Keep your eye on cash-flow management
You need to avoid focusing too heavily on profit. While that may sound like a contradiction to my first point, it’s far from it. You look at your profit and break-even point in order to set benchmarks – but you still need to maintain focus on cash-flow and spending. That doesn’t change just because you cross over into profitability.
“Every month isn’t enough,” says Derek Flanzraich of Greatist. “Nearly every week I’m checking both my personal and business finances.”
3. Always maintain a cash reserve
Every start-up should expect shortfalls. They happen to everyone, even with the best plans in place. But your survival likely will depend on how you traverse those shortfalls. Having cash reserves for those lean times lessens the blow, the stress and the distractions, and allows you to stay focused on growing your business.
4. Manage funds better
Unless you absolutely have to (which is rare), you shouldn’t handle the money for your business. That includes tracking it and handling your accounting. Hire an accountant or CFO to tackle this task for you. If you can’t bring on the extra help, designate a trusted employee to be a cash-flow monitor.
You can simplify this process by using a service and software platform like InDinero.com, which provides accounting software to make cash management easier. The service also provides access to accountants, CPAs and tax specialists who will work diligently to help your company grow. Having access to tax specialists is especially important to your cash flow, since they’ll make sure you stay on track with deadline dates for filing your business tax returns, to avoid penalties and interest.
5. Collect receivables immediately
Try to make any invoices “due immediately” and limit the use of net terms longer than 15 days. If you can do so, delegate the task of keeping an eye on receivables and customer follow-up to get money in as quickly as possible.
6. Offer discounts to collect payments earlier
If you don’t want to wait for normal net terms to pay out, then offer your customers a discount if they pay early. If employees are dealing with collections, then make sure you have guidelines that state their eligibility for discounts; and then enforce those standards strictly.
7. Extend payables where you can
While you want to bring payments in as quickly as possible, work with your suppliers and vendors to get the best deal you can and extend payables to net 60 or more, if possible.
8. Spend only on essentials
Part of your forecasting model should give you a strong view of the necessary expenses that are coming down the pipe. Outside of the most essential purchases, you want to minimise spending and eliminate costs that aren’t essential to your operation until you’re profitable.
9. Be smart about hiring
I often see advice in this area that says something like, “Don’t hire until you absolutely need to.” That’s fair advice to a point, but I’m more apt to recommend smart hiring. If you can recruit top talent, a highly skilled worker is likely to be able to tackle the work of two or more mediocre employees.
You’ll probably spend a little more in salary or benefits to get that top talent, but that amount is still bound to be less than you’d spend on multiple employees covering the same task who make more frequent mistakes.
Another outcome is that they may quit on you, forcing you to start over. According to the University of California-Berkeley’s Institute for Research on Labor and Employment, it costs an average $4,000 to hire an employee. So, be smart about whom you recruit if you must hire someone.
“The secret to successful hiring is this,” says Marc Benioff, CEO of Salesforce. “Look for the people who want to change the world,”
10. Make the best use of technology
Always back up your files and cash-flow spreadsheets, to secure cloud storage. Not only will this keep your data secure from local file corruption or data loss/theft, but it will also make it easier for you to gain access from anywhere you have an Internet connection.
This is another situation where accounting software can come in handy.
This article was originally posted here on Entrepreneur.com.
Leon Meyer GM At Westin Cape Town Shares 4 Experience-Driven Tips On How To Keep Your Team Productive
Productivity is a fundamental requirement for an organisation – it’s the seed that builds a business and contributes to higher profit margins.
Productivity is a fundamental requirement for an organisation – it’s the seed that builds a business and contributes to higher profit margins. But what’s the best way to ensure employees remain productive, and happy in their day job?
The answer is simple and highly effective and I choose to sum it up with three short phrases – respect, trust and teamwork.
In partnership with my management team, which consists of about eight staffers across various disciplines, we strive to tick these boxes.
In total we’re ultimately responsible for managing roughly 500 employees.
Five hundred employees across several departments is a mighty job. But with teamwork, good listening skills and the right attitude from the top to filter down, any business can run like a well-oiled machine.
I’d like share with you the essentials for building and maintaining a productive workforce, and these apply to all industries, not just the hospitality sector:
1. What’s your definition of a productive team and how do you achieve that?
We need to keep in mind that productivity is a result, one that CEOs and managing directors strive for with their teams. But what happens beforehand in order to achieve that result determines whether it will be achieved at all, and is equally important. I suggest the following to ensure a productive team:
Define roles and responsibilities: Direction is incredibly important; everyone needs to know exactly where they’re going and how they need to get there, so KPIs are essential.
Often when roles and responsibilities are unclear, things go pear-shaped. I am an advocate for setting clear KPIs, it’s a good way to steer us in the right direction, and in turn helps to grow the business and the individual in his/her role.
Be flexible: Rigid environments are the worst kind, allow your employees some flexibility and the opportunity to be themselves in the workplace. We spend so much of our time at work, we need to be ourselves there.
Celebrate the team: When there are achievements, celebrate them, single out individuals who are excelling and living the company values. This builds morale and is indicative of appreciation, which is fundamental when running and building a business.
2. What has and continues to be your philosophy since managing a large team?
Know your strengths and weaknesses, as well as your team’s and leverage off that. Be prepared to learn from others, no one can operate in isolation, regardless of the level on which you operate. Accept criticism and don’t bulldoze someone’s ideas, that’s how you build trust.
3. What in your view are the top characteristics the team look for in a leader?
- Be consistent – inconsistency screams bad leader
- Provide guidance – this is key, don’t turn a blind eye, give input and council
- Listen – always listen intently
- Be impartial – always be fair
- Give credit – it builds morale and shows you recognise good work
- Be patient – Rome wasn’t built in a day, and remember not everyone thinks the same as you do
4. What’s your view on an open door policy and how does it assist with managing a team and ensuring everyone remains productive?
I believe in an open door policy. It’s essential to build and develop trust. I’m the first to admit that it takes a while to build that trust, but once the team (on all levels in all departments) know your door is always open, and that they can trust you implicitly, half the battle has been won.
I host a GM’s roundtable every two months, just to establish how everyone is feeling and where everyone is at. It gives staff the opportunity to bring their challenges to the table, and I deal with them the best I can.
It’s 100 percent confidential and line managers are not allowed to attend. During this meeting we try reach common ground, and I commit to addressing and ultimately solving the problem(s).
Why Purpose Drives Profits
If you want to succeed, it’s time to start engaging where it matters.
Over the past two years, many clients have been extending brand positioning exercises into purpose-driven expressions.
When we look at it, it makes sense given the country’s demographics. With many of our fellow countrymen struggling to make ends meet, brands have stepped in to provide them with a picture of a future worth striving for.
Global customer-centricity study, Insights 2020, led by research firm Kantar Millward Brown, has attempted to understand how brands could drive customer-centric growth as well as the factors that really make a difference. The research surveyed 10 495 individuals in 60 countries, and there are some significant efforts worth investing in if brands want to engage where it matters most, in consumers’ hearts.
The research uncovered that for market-leading companies and brands, traditional value drivers such as quality, packaging, or distribution are necessary, but no longer provide a competitive advantage; most brands are capable of providing these drivers. What is important, are a few critical approaches.
1. Purpose-led brands
The study found that when companies or brands linked to a purpose, 80% of them outperformed the market. Only 32% of non-purpose led brands managed to perform better than the market.
Related: How To Calculate Gross Profit
2. On the ground
It’s important to engage with consumers in their space and on their terms. Through the use of memorable campaigns, experiential events and activations it is critical to engage with consumers on their turf.
3. Be truthful and authentic
Consumers can smell something inauthentic a mile away, especially when it’s coming from a brand. This forces brands to strive for authenticity in everything they do, especially when it comes to marketing. Building values and principle-based attributes into your brand as a guiding tool is essential.
4. Helping consumers commit
By allowing individuals to attach themselves to a brand with a purpose, it helps consumers personally commit to a cause that they consider important. When a consumer is personally invested, the link between the brand and product or service deepens.
5. Balancing heritage and modern relevance
There is a continuous tussle in balancing the traditional market, transitional market and the new consumers brands are trying to attract. Keeping the heritage and roots of the brand true to itself, while creating relevance for the new market, is a battle marketers are still fighting.
Need To Trim The Fat To Boost Profitability? Listen To Your Clients First
Jeff Bezos believed that once you win the client over by doing this, everything else will follow – not least profitability.
Finding the balance between offering the extras that set you apart from your competitors and keeping things ‘lean and mean’ to minimise wastage and maximise return on investment is a tricky balancing act.
I’ve noticed that many businesses try to attract or retain customers by offering what they think their customers want, rather than finding out what they really need, and then delivering that. That’s an expensive mistake to make – and it’s not going to achieve the business results you need.
I’ve also observed that now is the age of the new entrepreneur – the game changers who disrupt the status quo long set by big bureaucratic competitors who think that their customers will just accept an inflationary (or slightly larger) increase every year, just because they always have.
While Amazon has been around for a while now, there’s also an important lesson to be learned from its launch goal, which was to bring the price to the client. Jeff Bezos believed that once you win the client over by doing this, everything else will follow – not least profitability.
How have I applied these lessons in my business?
Firstly, we design our hotels backwards – we focus on the needs of our clients, very aware that what hotel guests wanted years ago is not what they want now. That’s why we don’t offer thing like a turn-down service with chocolates on the pillow. Nobody eats the chocolates, and nobody uses the toiletries – so why should we include the costs of these unwanted extras (and the cost of the staff required to implement them) in the final bill to our clients?
We do, however, offer free WiFi internet connectivity, free parking in our buildings, free laundry services and either bed-and-breakfast options or self-catering rooms.
Simply put, we’ve cut the fat that nobody wants anyway, and added the value that our guests have said they expect.
Our clients have said that they expect the whole hotel to be a workstation, and not just the business centre in a dark, unwanted corner. So, we’ve put a workstation in every room, with always-on access to the internet. Our hotels are designed with beautiful work spaces that cater for nomadic entrepreneurs and double up as comfortable meeting spaces, again – gone are days of boardroom only meetings, our spaces are primed for work and play in one integrated space.
Our clients have pointed out that they’re already paying for their room – so why should they pay for parking?
Many of our clients stay with us for days or weeks at a time, and have said it would be helpful if we did their laundry. So, we do that for them – and we don’t charge them for it.
It’s true that many of our old-school competitors offer a broader range of products and services than we do, but we’ve built a successful business on adding the value that our clients need, removing the costs and extras that annoy them, and keeping costs (theirs as well as ours) under control by cutting out unnecessary frills.
It’s an approach that’s worked for The Capital Hotels and Apartments as a disruptor in the hotel and long-stay accommodation industry, and I’m confident that its principles would apply to any other industry that’s ripe for disruption.
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