- Proper planning is an essential ingredient throughout all phases of your business.
- Challenge your business idea thoroughly and use clever forecasting in your business plan.
- Consider hiring a business coach who has built a successful business, undestands numbers and gets you to act instead of merely mentoring.
Starting a business is an incredible journey, but it’s not one for the faint hearted. As an accountant and business coach for over 10 years, I know what it takes for an SME to succeed in a sea of competitors. What’s the best piece of advice I can give?
Well-managed businesses with hefty profits go through three key phases of business development – evaluation, establishment and growth – with their eyes wide open.
Phase 1: Evaluation
This is the most common question I get asked by start-up CEOs: is my business idea any good? My answer always takes a cue from Tim Ferriss, “Some entrepreneurs overvalue ideas and therefore, almost by definition, undervalue execution”.
Technological advances over the past two years have meant barriers to starting a business are at an all-time low. According to Upfront Ventures, the average cost of a start-up was $500,000 in 1995; as of 2014, its as little as $5,000. Online businesses have flourished, with the ability to run from just about anywhere and trade globally.
Although getting started is easier than ever, many don’t celebrate longevity. According to the Australian Bureau of Statistics (ABS), there are 2.1 million small businesses in Australian and more than 60% of small businesses close within their first three years (Inside Small Business, 2018). In the 2017 financial year, 54,992 businesses went under, an increase of 12.7% from the year before.
So, what should you do in the start-up phase, to ensure your business doesn’t ultimately fail?
Business idea evaluation is a critical. The most important step of critiquing a business idea is determining who will be buying your product or service – who is your ideal customer? Often, the narrower the niche, the better.
Make sure you know your Unique Selling Position (USP). Why should a customer buy from you, rather than someone else? If you can’t answer that question clearly, do not expect customers!
Preparation of a forecast is essential. How will my idea make money? Only a forecast and comprehensive three-way business model can really answer this question. Think of this step as an early warning system – it can identify potential shortfalls in cash well in advance and will highlight issues with customer payments. The habit of preparing and reviewing a forecast also instils an important discipline; forecasting is a critical cash flow management process and essential for a business to survive long-term.
A case study
I did a cash flow forecast for a client who was launching his first business. During the information gathering process, it became apparent that it would take almost six months to receive the first receipt of cash from major customers, and there would be eight months of start-up expenses to outlay prior. Without completing this comprehensive forecast, there’s no way the client would have been prepared to survive the first six months of business.
That said, cashflow forecasting is not a crystal ball and it won’t always be right. Unforeseeable circumstances do happen, and the wrong inputs can be used, creating a forecast that is horribly wrong. Assumptions made in a cashflow forecast need to be strongly challenged and tested.
Phase 2: The Business Plan
Ok, so you’ve done your homework and your business idea is feasible. You’ve started your business and you’re ready to conquer the world. What’s the next step in business best practice?
A business plan.
Every business should have one. And I’m not referring to those old-fashioned business plans that are 50+ pages long sitting at the bottom most business owners' drawers, never to be read. I’m referring to a concise plan mapping your course to success. Your business plan should be a living document that is reviewed and updated regularly.
Steve Blank, who launched the lean start-up movement, is famous for the saying ‘no business plan survives first contact with a customer’. He challenged business owners to present current and potential customers with choices and let them show vote with their wallets. He also made the point that business plans are only a starting point and they should constantly evolve and adapt.
Your plan should incorporate realistic, measurable goals, and clear strategies to achieve your objectives, with regular updates to cater for any changing circumstances. This should include an analysis of your market and predictions on future developments. It’s also important that your strategic plan reflects the objectives you, as the business owner, have for your business and your personal life.
Here's an example of how to elaborate on your business goal.
It’s not enough that your plans states: “We aim to have 12 customers paying $x amount each by next year”. How will you attain those 12 customers? How will you reach them? What is the onboarding process for those customers? Once this is mapped out, the number of customers per month should form the basis of tracking performance. If you are not tracking in line to achieve at least one new customer each month (per this example), the strategy needs to be adapted.
Phase 3: Hiring a business coach
Mary Kay Ash of Mary Kay Cosmetics famously stated: “Ideas are a dime a dozen. People who implement them are priceless.” This is where a business coach is invaluable.
The fastest way to learn is to study a successful person who has walked the path you want to walk.
According to a Forbes article entitled ‘The Success and Failure of the Coaching Industry’, coaching is estimated to be a $2 billion global industry that is rapidly growing. Having said that, not all coaches are made equal.
Here’s what to look for in a great business coach:
1. Experience: Just like any relationship, before you sign up with prospective coach, do your due diligence. They don’t need to have established the type of business you are pursuing, but they should have a track record of success personally and with their clients. It’s also okay if that person has also shared in failure; it’s the greatest learning curve out there. Try to talk to their previous and current clients for feedback.
2. They help you act, rather than mentor: A mentor is defined as a ‘wise and trusted counsellor or teacher.’ A coach walks with you along the journey, while a mentor has already walked the journey you are embarking on. A mentor can share their stories, wisdom and insight and act as a sounding board; a business coach is there to ask you the tough questions about your business and lend a helping hand.
3. Good communication skills: An astute business coach will know the questions to ask to prompt the owner to think futuristically.
4. They know numbers: Regardless of turnover levels, it is essential that someone is always keeping an ‘eye on the numbers’. All businesses must deal with uncontrollable variables, but a business coach will help you prepare for the future. In an established business, they can assist in recommending systems and policies to protect your SME. While growing or exploring new ventures, they help ensure any changes planned are the best ones available.
5. Reporting is their bread and butter: Often, a business’s monthly report is produced but the management team don’t read them. Reports can be difficult to understand, out of date or simply don’t address the needs of those reading them. However, reports are vital and business coaches should be there to help you act. Someone needs to keep a constant watch for issues arising from the company’s regular financial numbers and be pulling and pushing the appropriate levers of the business to ensure growth and success.
6. They have sector-specific know-how: There’s a lot to be said for having a coach who knows your industry back-to-front. Look for someone who has the expertise and is actively thinking about effective outcomes and moves that will be advantageous in the current industry landscape. This can also help you minimise risk and plan effectively.
Business evaluation, establishment and running phases can be hard – really hard. But it’s usually worth it, especially if you have the right financial advisors with you on the journey.
“The cowards never started and the weak died along the way. That leaves us, ladies and gentlemen,” said Phil Knight, creator of Nike.
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