I have been in the financial business for over 20 years in Singapore, Tokyo, Auckland, Hong Kong, etc. I am writing this blog post for those small businesses that need strategies that help build value for the small business. I have combined thoughts and plans for small business success with some step-by-step financial modeling that will help link business thinking with mechanics of the financials. Importantly, the real story for small business as set forth by your business plan, with quantitative outputs for financial modeling.
- The Business Questions
- Value of Building Credibility
- Keeping Good Financial Books
The Business Questions
Financial and business resources are looking for the business owner that has a clear sense of their opportunities and how to business stainable buildings. Thee Business owner will encounter fundamental startup questions from potential banks
- How much do you need?
- What can go wrong?
- What do you think your company is worth?
- What is the business return on investment (ROI)?
- How do you make money?
To explain how you make money with your idea, your employees, marketing opportunities. The risk is a significant factor in any value business. Knowing your customer and why, how and where they buy related products is arguably the most critical risk factor in assessing before launching your product. Research this thoroughly. Identifying these routes to market, and whether you can build them effectively, in a timely fashion and within your budget, could quickly determine the success of your business. If the market risk falls in your favor and you get into your market early enough, there’s no reason why your business can’t succeed.
First-time entrepreneurs are fortunate to have tools such as Kickstarter and Indiegogo that enable crowdfunding to get money in the bank. Also, friends and family, angel investors and traditional VCs are all fertile sources of this necessary lifeblood.
Value of Building Credibility
As I have engaged with large and small bigness owners, keep the following strategies in mind. I have worked with a large number of politicians, multinational companies, small business owners, etc.
- Your employees and process – how reliable is your team, seal the deal, or put skin in the game
- Control your company – know what own, know what you control, and know your technology
- Execution is everything – take early actions, feedback look, and be agile with technology, and get there faster
Business owners often specify measurable goals in their strategic plans. But once the planning process is a wrap, the document might be set on a shelf and not revisited for quite a long time.
A key to ensuring execution is staying on top of results. Entrepreneurs should develop key performance indicators (or KPIs) that can be measured and monitored on an ongoing basis. They need to procure operating data related to these indicators and evaluate results on schedule (daily, weekly, monthly or quarterly).
The executives should evaluate what’s working and continue these processes and enhance them to boost performance. With failing results, they should determine what processes don’t work and make immediate adjustments to prevent further deterioration.
The entrepreneur should also meet with the executive team and key management personnel on a monthly or quarterly basis to evaluate the progress with the strategic plan. These strategic meetings should be more in-depth and designed to determine if changes are required.
The periodic strategic meetings should discuss strengths, weaknesses, opportunities, and threats (or SWOT). They can help executives determine if the strategy’s soundness in light of changes within the organization, industry, and economy. The meetings should aim to exploit strengths and opportunities while mitigating weaknesses and threats.
Keep Good Financial Books
To make money from their innovations, companies must manage what the authors call the “cash curve.” As they explain, most companies have reams of figures about their innovative projects, but this data is often impossible to use in practice. “While it is important to have detailed financial information about cash flow, net present value and financial outcomes of multiple scenarios, these tools all too frequently don’t enable different groups of people within a company to visualize the implications and alternatives that would help them make effective business decisions,” the authors say. This is where the cash curve can help. “This is a case where a picture is worth more than a thousand words — it may be worth $100 million or more.”
The cash curve is based on four “S factors”: Startup costs, or the pre-launch investment; Speed, or the time it takes to get the product to market; Scale, or the time it takes for the product to build a critical volume of customers; and Support costs, or the investment that is needed to keep a new product or service up and running after it has been launched. The cash curve plots cash flow over time as the product goes through successive phases of idea generation, commercialization, and realization.
Now consider each of these four factors in some more detail. When the startup or pre-launch costs are very high — or, plainly put, the size of the hole is too broad — it implies that the product will need to achieve enormous success in the marketplace to deliver payback. That, fundamentally, was the problem that Motorola ran into with Iridium. Although Motorola limited its own financial risk by involving other partners, the $5 billion startup costs were so high that the project needed a huge number of customers to become viable. When those customers failed to sign on, it sank the project.