Business Journey's from birth

Owner Managed Business – Access to Source Funding - many of us jump into running our own business, with relatively low barriers to entry we are excited at how our expertise can help the world, be in charge (the big boss/CEO)?and be in control of our professional destiny. Perhaps keen to escape from the confines of being within a restricted corporate environment with rules of what to do and what not to do we set out on the brave pathway to become an owner managed business.

How many of us now, with the benefit of hindsight actually look back and wish we had known a few more commercial aspects of running a business before jumping in when we started out on our own business journey?

Whatever our reason is/was for starting out under own steam how many of us have thought about what is involved and more importantly how much money will I need to be able to maintain my living costs whilst being able to grow my business. I call this our financial runway.

Whether we have an optimistic streak in us that says and believes that we can set up a profitable business within the first 12 months or a more cautious approach that asks how long will it take to be up and running, pumping out cash and profits.?Both states of being need to be addressed. Perhaps the most dangerous area is not having any plan, yes, as entrepreneurs we can fly by the seat of our pants, but nearly all entrepreneurs I know all have a plan and have spent plenty of hours in blood, sweat and tears building their own sweat equity into their cherished idea and business baby.?

The energy of flying by the seats of our pants is great, yes, it’s needed (a requirement) to have the courage and resilience to start business ventures, but sometimes the seat of our pants can become a little thin and we need solid frameworks and support structures too.

Now, we know there are many different aspects to establishing and maintaining our business and source funding is only one piece of the puzzle. In this article I am concentrating on funding, all other considerations in business such as the business model, pricing, product, market etc, brand are all covered separately as part of my business school program. One of the most important aspects of business is to ensure that planning is something we have and that we keep it a current working tool.

Nothing in business stays the same, dynamics constantly change and therefore as business owners we need to be thinking about time frames that stretch out 6-12 months ahead in detail and Years 2 -5 in high level thinking. Our business needs to constantly evolve, once we have established a profit making/cash generating business how we think about next stage of growth is always important. Organic business growth means looking at opportunities ahead by giving consideration to constraints and risks too. Being able to bring resources into our business, whether that is staff members, contractors, third party suppliers etc. How we think about funding the acquisition of products, materials will allow us to grow and achieve those critical milestones.

Let’s consider the different options that we have in order to start and grow our business.

Some examples of source funding options may include:

Nest Egg – a lump sum from savings/inheritance/redundancy/payout

Business Loans – high street lenders, long form documents and lengthy credit risk review

Family Loans – short form agreements to protect outcomes for all parties

Government Grants – federal and state based, potential matching, mentors

Angel Investors – venture capital funds, aka ‘shark tank’, access to mentors

Debtor Financing – loans based on customer invoices

Venture Capital Funding – third party investor with an exit strategy 3-5years through listing & management buy-out (MBO)

Retained Earnings – profits & cashflows from existing business

Sweat Equity – founder time invested into business without salary

It’s important to understand that each of these funding options have their respective advantages and disadvantages.

Earlier this year I was working with an established business, preparing to submit an application for a Government Grant which inspired me to write this piece and share some of my insights with our owner managed business community.

?When thinking about the source funding that you want to explore, think about the requirements from both sides of the arrangement, that is, what is it you are looking for and what will the lending party be looking for in return. This is a critical relationship for your business and it’s important that both parties have their needs met.

Are your values aligned with the values of the lender – can you adhere to the requirements that the lender will ask of you in return for lending/investing the funds. Can you meet their lending criteria which might include a directors guarantee, financial covenants and serviceability – interest and potential staged repayments.

What are you willing to contribute to the lending/financing arrangement – usually monthly and quarterly detailed business reviews, more intense scrutiny and auditing of spend, especially when utilising government grant money.

How much of your own money needs to match with the lenders investment – again a common requirement in government grants – your application of $100k (for example) may need to be matched with your own investment of $100k.

What project criteria does the lending party need to see in form of a plan from your business, are you trying to shape your growth concepts into a lenders requirement – think about forcing a square peg into a round hole!?

Am I willing to bring an investor into my business in return for a share of the equity, which may mean a loss of total control in my business or having an additional voice on the direction of the strategy.

I realise this can be a daunting area to explore on your own, especially if you do not have a strong commercial or financial background.

Here are my top 3 tips to getting started:

Preparation & Plan – what stage is my business at – Concept, Creation, Incubate, Launch, Growth, Established, Maturity and potentially Rebirth. It is likely that each stage of business will need a different plan, and some businesses will have products and services that fall into each different stage. Different type of business and respective industry groups will also have a factor in how much funding is required. For example, retail and manufacturing will have larger cashflow requirements for projects/seasons whereas service led business can have more smoother cashflow requirements, assuming already revenue generating. Basically, all these consideration means it’s not a one size fits all approach.

My advice would be to consider modelling your plan to have a separate base line financial plan and then separate plans for each future individual project which then layer over the top of the baseline in order to get a consolidated view. Key areas to understand and map out are:

·?????identifying your expected revenue streams for each product/service that you offer,?supported by market insights and intelligence

·?????Estimate the timing of those revenue streams and apply metrics that show growth over time based on appropriate pipeline and conversion metrics??

·?????Build your pricing model for each product/service you offer

·?????Identify all the costs in your business and categorise them into two clearly defined areas in your profit and loss statement -?1. Cost of Goods Sold – which is the direct costs of delivering the revenue and 2. General Business Overheads – which can include costs of support, office overheads, including systems and IT subscriptions, registration costs of setting up a business and ongoing accounting and financial support etc.

·?????Build your financial forecast for Years 1 – 5 showing 12 month details for Year 1 and 2 and summary for remainder, including a cashflow requirement over the same time period

Build an Investor Deck – Treat your business with the same degree of respect and excellence that a public business would. Invest time and strategic thinking into how your business can establish and grow in your market. How would you hold an investors presentation for 30-45mins talking about the value in your business. Describing the product/service that you have and how it is compelling in the current and future market, what is your sustainability plan, point of difference, value alignment with potential collaborators, demonstrating value from actual and forecast revenue plus synergies with potential mergers/acquisition targets. How will your business continue to grow, what would be an expected value of the current opportunity, what are the maintainable earnings in the market across the next 5 years.

Identify each new product/project which will enable your business growth, dedicate sufficient content to describe the business model, the opportunity from a numbers perspective, addressable share of market, additional revenue and profit to your business, the risks of growth versus the challenges of constraint and staying ‘as is’.

Build connections and networks in circles where you can expose your business to opportunities for funding – such as a Business School, Incubator programs, Investors springboards. Ensuring you understand your business, the revenue and cost drivers is key, having others assist with accounting, financial strategy and investment advice is imperative. Seeking out business advisors, having a strong accountant who is doing more than simply your quarterly BAS is important, as many business owners try to juggle everything which can have limiting consequences further down the business path. Building connections with other business owners and joining groups allows for sharing of challenges, sound boarding ideas on what has worked versus what has been tried and tested and worked or didn’t.?Hearing others talk about their challenges really does help to normalise our own, plus learning, gaining invaluable insights. Having connection to advisory firms, finance and business coaches, virtual CFO’s can help with strategic thinking, planning and also further connections in the world of source funding as finance people tend to know finance people, and getting the inside track when it comes to raising capital is much needed in a very busy market place with lots of areas to understand and navigate.?

Triggers – Detractors & Motivators

Interesting to explore what triggers us, as business owners, to step forward and take action. Everyone is different and we will have reasons for moving ahead and reasons for potentially stalling or delaying decisions, I call these motivators and detractors:

Reasons that detract us:

Do not have the strategy, a financial plan past the next 12 months, have not been able to document my thinking and map out steps in which I can actually achieve my dream goals

Do not trust the process, or enjoy the interrogation with the financiers

Have been down this path many times before and just get a ‘sorry we cannot lend at this stage’ response, its feels like a waste of my valuable time

Reasons that motivate us:

I receive universal signs that my business needs to grow, market opportunities that I see, additional products range/services that I can offer and build as I know the demand is there

I’m running out of cash in my forecast for the next six months and I need to raise some much needed funds for growth

I have received some training/support or business advice that gives me frameworks for growth levers and I can now see the opportunity to take me business to the next stage.

It can be helpful to make a list of your own detractors and motivators and call them out to see if they make sense, or whether you could move through some of them with a conversation with the right support person…

Conclusion

Failing to plan is planning to fail. Knowledge is important when it comes to business and having eyes on what your numbers are for the next 12 months is vital. Having a week by week cashflow is key to understand how each driver of your business impacts the other. Knowing your capital commitments and planning for the regular maintainable business is important and allows for growth and further investment at the right times.

Trusting in yourself and a having your own financial person who can help with the numbers, keeping you accountable will ensure success and limit any nasty surprises along the way.

Getting the fundamentals right gives such a strong foundation to support your business today and into the future as growth opportunities present in every changing dynamic markets. Map our your sequence of events over the next 12 months that include all the initiatives that you have identified as opportunities to explore, understand the need to resource those and allocate time each month to review, measure and keep yourself accountable.

Don’t be alone on this journey, surround yourself with good support, commercial ideas and people who listen and get you. ?I would love to chat and have an obligation free discovery call.