Planning, funding and managing cash flow
In business as in personal life, cash is the lifeline for everything we do. Managing cash flow can be a major challenge, and stands as a critical success factor for every business. Even before opening for business, one of the chief criteria a lender or investor will most closely scrutinise is your ability to generate and manage cash.
So it is important to understand some of the fundamentals that any funder, lender or an investor will consider before dishing out their hard-earned money to you.
First and foremost, they will examine the quality and robustness of your business plan. So get a friend to help finesse it, or better still pay a professional to write one for you: it is a vital first step that needs to be taken if you are to start out on the right footing with a new venture. A good plan will not only provide investors with the level of confidence they are seeking, it will give you the direction you will need and will help shape good decisions. The business plan needs to be organic, rather than a forgotten piece of shelfware. It is something that will need to be regularly shared and presented, reviewed and revised with your potential investors and business associates.
you are in the business of business, and if you need to raise funds, then the advice must be that a business plan is an imperative which calls for time, effort and money. If it is to hit all the right notes, then make sure that your business plan is SMART: Specific – Measurable – Actionable – Resourced – Time-bound
You cannot be all things to all people indefinitely so it is vital that the business plan is focused and time-bound. If it is not, in all likelihood, is not a realistic plan! Therefore, plan! plan! plan! Remember these words of wisdom on business planning. Without a plan, you cannot raise funds, let alone act or respond to changes in the whitewater environment of business.
“It is not the strongest of the species that survive, not the most intelligent, but the one most responsive to change.”– Charles Darwin, scientist
The twenty questions of business funding
Key factors that lenders and investors will consider before backing a business:
Owner credibility – Do you have references to attest to your character and professional and/or entrepreneurial capabilities? People invest in people first!
Business plan – Do you have a well documented business plan?
Vision and mission – Do you have a clearly articulated vision and mission statement of the venture?
Is the idea marketable? – Do you have a business plan with a marketable idea? Is your market reachable? Can your proposition be marketed?
Target market – Do you 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 a high potential for growth?
Commercial model – Do you have an absolute understanding of cash flow and how money is flowing to your business? Is it easy to explain or is it as complex as Enron? Will the other players in the industry value chain tolerate your existence and let you ‘eat their lunch’?
Our goal 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.”– Unknown
Operating model – Do you have a well-articulated process as to how your business would be run? This includes the processes on hiring, accounting, product development, sales and marketing, supply chain management and all the other processes that are required to operate your business.
Business strategy – Do you have a business strategy to execute on the plan? Is the strategy realistic?
Risk mitigation – Do you have a clear view of the potential market, technological, legal and human capital risks for your new venture? If risks have been identifi ed, do you have a view and a plan as to how you will mitigate these risks?
Profit potential – Do you have a business plan that reflects realistic profit potential in a reasonable period of time? The annual rate of returns should be high enough to compensate for the risk that a potential investor is making.
Unique value proposition – Do you know how to differentiate the business proposition 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 to get scale before other imitators follow your model?
Go to market model – Do you have a clear view as how you will take your proposition to the 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?
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 is not going to cut it for you. Likewise, having all the marketing and sales superstars, without the relevant technology talents, is not a viable proposition.
Technology – Is the technology unique? Is it patentable? Do you have the right folks to develop the proposition? Is it easily copied or imitated?
Supplier and partner commitments – Have you secured commitment to supply from your vendors and suppliers? Are your vendors and partners reliable and dependable?
Execution capability – Are you able to execute and deliver a superb quality proposition with a high degree of probability? What are the weak points in your execution? How are you going to mitigate this weak area?
Cash is the most important asset of any business, whatever its size – and is used for short term operations, purchases and acquisitions.”– unknown
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?)
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?
Socio-economic benefits and ethics – Is your business legal? Is it an ethical business that investors can be proud of being associated with?
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, balance sheet, and cash flow statements? Do you know well, your sources of funding (both equity and debt)? Do you know when a new injection of funding is required and how you plan to secure it?
JohnLincoln.one The business growth hacker