Posted: 2010-01-27 / Author: Bob Power
Manners Maketh Man - Money Maketh Business“MANNERS MAKETH MAN-MONEY MAKETH BUSINESS”
“Turning a dream into a reality”
“It is not what you do-it is the way that you do it”
This paper is an overview of business in the real world, especially for those wishing to enter business, either by start up or buying a small business, be they entrepreneurs, small business entrants, retrenchees etc.
The paper is meant to be constructive not destructive, and is written on the theme –“Keep it simple”, without the use of Legalese or Jargon (“Words or phrases used by professional people, which the man in the street does not understand”). It cannot be denied that going into business is “not a bed of roses” and regrettably 80% of start up businesses fail in the first 2 years of entry, but if you get it right the rewards can be great.
But you are only going to get it right by being at the coal face and getting your fingers burnt- you learn by mistakes. You cannot succeed in business by reading about business in books-go out there and do it, but be encouraged by Warren Buffet who said “Going into business is like getting married-enjoy yourself, take your time, but do not be rushed into where angels fear to tread”. Good advice.
So let us live in the real world. This paper will attempt to highlight areas which must be addressed which can have a bearing on the chances of success or failure.
1. THE BUSINESS PLAN
It is imperative that all small business owners have and comply with a business plan-there must be a plan for moving forward. However, I belief that the following points must be noted:
In is no use paying a consultant a large sum of money for a plan which you do not understand. Watch the business plan taken out of the draw, and a few changes made.If you are looking for a loan-it may be difficult to state that you business will make a profit, when you are making a loss. Will the bank lend you money if you state that you are going to make a loss? So, therefore, does the business plan really tell the truth? To make a profit in the first 6 months is difficult to obtain.Do bank officials understand the business plan?The executive summary is paramount-20 page plus business plans are often/ not read. The SWOT analysis is also very relevant.Grammar is important.Following on the business plan approval, the bank will want collateral for monies raised-suretyships have to be signed-my concern is that signing suretyships is against the principle of limited liability-so why then do we need to form legal entities-know what you are signing, you might be signing your life away.
2. CASH IS KING
I have always worked on the following principles:
Cash is King-or more specifically cash flow-(Case 1-2 motor cars). Information is power-provided the information is correctTurnover is vanity.Profit is sanity.The spoken word is cheap-get it in writing. Memories are short.Don’t sign documents that you do not understand – caveat subscriptor-you are liable for what you sign.Do you really understand the business that you are entering?Case study-2-Understanding the difference between turnover and profit
3. THINGS ARE NOT WHAT THEY APPEAR TO BE
The seller will “tell the truth, the whole truth, and anything but the truth”???“Going into court with clean hands”-If your staff steal –you cannot take action, if you are stealing as well. Case Study 3-Not paying VAT.Skeletons in the cupboard.Leaving it to the book-keeper-you must have an idea on financial documents and administration-let him do the donkey works (a badly neglected issue).Crime awareness-recent events.Dealing with debtors (push hard) and creditors (delay as long as possible).Use of advisors-Case study 4, you pay even if not successful.
4. BAD HABITS
On entering business, and especially when money is tight, you are inclined to take some chances and sometimes break the law. It is called breaking the eleventh commandment-“Thou shall not be found out”. Be careful, sleep at night and keep to the law. In particular watch the following:
Using the company credit card/car for personal use. Not paying VAT when you have to pay your employees. Poor time keeping.Procrastination. Ignoring letters from the Receiver or lawyers-you can’t beat the Receiver he is everywhere. Overcharging on fees-especially consultants.Thinking product not profit.Poor presentation skills.Entrepreneurial excitement-rushing into new products without testing the market.Taking money out of the business-the money belongs to the business.Overcapitalisng-employing staff, buying equipment, leasing premises-when you don’t really need them-Work from home until you can afford to move out.Not learning from past mistakes
5. ARE YOU READY TO GO INTO BUSINESS?
I am of the opinion that often people go into business for the wrong reasons:
Don’t rush in-keep your job for as long as possible.Going from being an employee to being an employer.Needs-Guts, Flexible, Self Starter, Do you have the money, What is the competition, dedication, passion, leadership qualities, can you make decisions, are you willing to take the risk, can you deal with people, are you a good organizer and communicator.No one is perfect.Do you have a niche market?Starting too big.Can you take the stress?
6. NEGOTIATION SKILLS
Good skills can save you a fortune:
Let the other man speak first-Case study 5.Don’t close the door.Be a good listener-don’t negotiate over the telephone.Know your subject.Keep to agenda-don’t agree piecemeal.“Never kick a man when he is down”-Winston Churchill-said “That is the only time that you kick him”Magic words-Yes, No, Why and How.
7. FINANCIAL KNOW HOW
Understand financial wording, especially what is in the balance sheet and income statement.What is the cash flow statement-money in and money out?Why do small businesses only deal is cash?????How do you value a business?Forgetting insurance.How to cost a product-gross margins.Watch the gearing-don’t over borrow-overdrafts are costly. Paying interest on overdrafts (Loans) reduces profits.Pros and cons of funding-internal from cash flow and external from equity and loans.Trouble-repayments to bank more than profits and loans.
8. WARNING SIGNALS
Late payment by debtors.Withdrawing too much for own use.Growing too rapidly without cash resources.Low profit margins.Adviser’s fees.Expenses increase-so doe’s interest.Economy.Receiver’s letters.Lawyer’s letters.Staff leaving.New products on the market.
9. MAJOR POINTS TO NOTE
For those entering business for the first time, the following points are highlighted:
Don’t have poor customer relationships-without customers you do not have a market.Lack of competitor knowledge/marketing.Not understanding people.Being penny wish and pound foolish, especially with advisers.Legal compliance requirements.Security today is our protection tomorrow.Don’t rush in with employees-use consultants-you only pay when you use them.Watch partnerships-BEE.Are you really the boss????You want to make a profit and survive-so must know how to earn money-how to cost products-how to control expenses.In conclusion the fundamentals are-Having a business plan which makes sense, Dedication and the right mind set to own your own business, Basic knowledge in management, finance, administration and market analysis and ascertaining how much money you have, need, and want to stay in business.
I wish I had it right from the beginning-I started on the wrong foot-too late. Don’t put yourself here.
Bob Power CEO of Power Corporate Consultants
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