This is the first part of a 3 part series on Cash is king! – Planning, funding and managing your cash flow for your business
In business and in personal life, cash is the life line for everything we do. There are many sources of funding that a small business owner and or an investor can turn to fund their new business, and or mange the growth of an existing business.
Managing cash is not just raising cash for your startup or growing business. Cash flow management is beyond funding.
Before, I discuss on funding sources and cash flow management, it is important to know some fundamentals that any funder, lender, investors or others seek before thy dish out their hard earned money to you.
First and foremost, you need a business plan! Yes, it seems too obvious. You will be surprised that not many entrepreneurs have it. You need to have a plan before you can execute. If you cannot do one, get a friend or pay a professional to write one for you. It is the first step that you need to do before you start on your new venture.
A business plan is required before you start your business. A plan gives you direction, like a compass navigating you through troubled waters. Remember that good business plans help shape good decisions.
You obviously need a business plan for sharing and presenting to your potential investors. Here are my top ten (10) compelling reasons s to why you will need to develop a business plan. Here they are:
- 1. Feasibility
A business plan helps you determine if your new business idea is feasible and that if the business is viable and sustainable.
- 2. Resources requirements
A business plan helps you identify the level of short, medium and long term financial and human resources that you will need to commit to your venture.
- 3. Risks
A business plan will help you to identify all the risks to your proposed venture as well as helps you to mitigate potential risks.
- 4. Stakeholder management
A business plan is one of the most important tools for you to communicate to your investors, lenders, employees and suppliers.
- 5. Funding requirements
A business plan is critical to identify your funding requirements and timelines when those funding are required.
6. Commercial model
A business plan will help you to know if your commercial model and pricing are realistic, and helps you to tweak and change your original assumptions.
- 7. Operating model
A business plan forces you to think end to end, your new venture’s operating model. A business plan further, forces you to think and map the end to end the processes that you need to execute your business.
- 8. Marketing plan
A business plan is a precursor to a marketing plan. You cannot have a marketing plan without a business plan.
- 9. Competitors
A business plan forces you to think about your competitors, and analyze your potential strengths and opportunities, as well as your potential weaknesses and threats to your business.
- 10. People
A business plan helps you to identify the right resources required for your new venture as well as identify skill gaps that you need to fill for your new business.
I have often been approached by many entrepreneurs seeking my advice or involvement in a venture. I often put the entrepreneur through a list of twenty (20) questions before I gave my nod. Here they are:
1. Owner credibility
Do you have references to attest to your character and professional and or entrepreneurial capabilities? People invest in people first!
2. Business plan
Do you have a well documented business plan? If you do not have, don’t bother wasting your time further. No one else will waste their time with you J
3. Vision and mission
Have you clearly articulated what the vision and mission of your venture is? This does not mean that you cut and copy paste from others to create your vision and mission statement. (I have seen this too many times).
4. Is the idea marketable?
First and foremost, you must have a business plan with a marketable idea. If it cannot be marketed, you are day dreaming. Is your market reachable?
5. Target market
You should have a clear view as to who your target market would be and whether the market potential is realistic or unrealistic, too narrow or has high potential for growth.
6. Commercial model
How is money flowing to your business? Is it easy to explain or is it as complex as the Enron cash flows? Will the other players in the industry value chain tolerate your existence and let you “eat their lunch”?
7. Operating model
Do you have a well articulated process as to how your business would be run? These includes the processes on hiring, accounting, product development, sales and marketing, supply chain management and other processes required to operate your business.
Is there a business strategy to execute on the plan? Is the strategy realistic?
9. Risk mitigation
Have you identified the potential market, technological, legal and human capital risks for your new venture? If risks have been identified, do you have a view and a plan as to how you will mitigate these risks?
10. Profit potential
You business plan should reflect realistic profit potential in a reasonable period of time. The annual rate of returns should be high enough to compensate the risk that a potential investor is making.
11. Unique value proposition
How do you differentiate in the market vis-a-vis your competitors? Are you a “me too” player? If you are a “me too”, you do not have much of a chance to get funding from established sources. You have to clearly articulate as to how and why you will have an edge over your competition.
What are the entry barriers for others to replicate your business model? What is the window of opportunity that you have to get scale before other imitators follow your model?
12. Go to market model
Do you have a clear view as how you will take your proposition to market? Do you have a view on how you will promote the business? What channels would you engage to take the product to market? How would you compensate them?
13. Sales and marketing capability
Do you have the right folks to market and sell your proposition? This is one of the most important functions critical for the success of your business. Having a bunch of talented technology folks alone are not going to cut it for you. Likewise, having all the marketing and sales superstars, without the relevant technology talents, is equally not a viable proposition.
Is the technology unique? Is it patentable? Do you have the right folks to develop the proposition? Is it easily imitable?
- 15. Suppler and partner commitments
Have your secured commitment to supply from your vendors and suppliers? Are your vendors and partners reliable and dependable?
16. Execution capability
Are you able to execute and deliver a superb quality proposition with a high degree of probability? Your plan is not worth a penny if you cannot execute. What are the weak points in your execution? How are you going to mitigate this weak area?
17. Management capability
Do you have an experienced team running the business? Are they credible? Are their experiences verifiable? Do they have the relevant functional and managerial expertise? Have they worked in the industry before? Or, do you have your brother in law as your Chief Marketing officer just because you had to hire him? J
18. Level of risk of the owner/s
Do you have “skin in the game?” What have you risked for this venture? Are you counting on a full “OPM” (other people’s money) funding strategy? If you counting 100% on OPM and if you don’t have any sweat equity, you can forget about raising any money!
19. Socio-economic benefits and ethics
Is your business legal? Is it an ethical business that the investors can be proud of being associated with? No established and honorable person will fund you if you for example, plan to open a adult website!
20. Multi-scenario financial projections
Do you have an optimistic, base case and pessimistic scenarios based financial projections for your business plan? Have you projected your income statements, balance sheet, and cash flow statement? Do you know well, your sources of funding (both equity and debt)? Do you know when new injection of funding is required and how you plan to secure it?
If you are in the business of business, and if you need to raise funds, then a business plan is an imperative that you should spend time, effort and money on. Make sure that your business plan is SMART (Specific, Measurable, Actionable and Time bound)! You cannot be all things to all people indefinitely. If your plan is not focused and time bound, it in all likelihood is not a realistic plan!
I leave you with two excellent quotes on business planning.
- “Our goals can only be reached through a vehicle of a plan, in which we must fervently believe, and upon which we must vigorously act. There is no other route to success.” – author unknown
- It is not the strongest of the species that survive, not the most intelligent, but the one most responsive to change. – Charles Darwin, scientist
Without a plan, you cannot raise funds, let alone act or respond to changes in the whitewater environment of business. Therefore, plan! Plan! Plan!
I would also recommend that you read the following relevant articles in my blog:
1. The experience is the proposition.
2. How much is my business worth?
3. Connect the dot in your business so that your customers and profits are connected.
4. Accentuate your virtuous cycles and disrupt your vicious cycles.
All rights reserved – John Lincoln, Brentwood, CA 94513, USA
John.firstname.lastname@example.org Twitter: @lincolnjc