It is said that the lack of access to capital, accounts to 50% of businesses failing.
I would like to challenge this belief and say that a large number of them fail due to a lack of understanding the numbers and also not making smart business growth decisions.
Unfortunately, money does not fix everything and we often see people throwing cash at something to patch a problem rather than fix it.
Now, don’t get me wrong, having enough capital is a huge component to ensure your success, but it is not the only part. There has been a number of times we have nearly taken outside capital to help support our growth but each time when we have honestly asked ourselves the question “is capital the only solution here?” we have not been able to answer yes.
Each time there was a problem in the business that we could do something about to fix the money problem.
I will share the three biggest recurring mistakes that have got us into financial stress situations in the past. Through working with our members in WE LOVE NUMBERS we have identified that there is a common theme with these:
Cash flow cycle
Do you have a positive or negative cash flow cycle? This means that for every sale you make does it provide you with cash before you have to pay for the goods or provide the services. Or does it actually take cash out of your bank which you then get reimbursed for later? The closer you can get to a positive cash flow cycle the less amount of capital you will require in your business. Once you are in positive territory you won’t need any at all because you will be printing cash!
There are so many different ways that you can improve your cash flow cycle. One of the simplest ways is to charge upfront rather than in arrears. If you have a great product or service offering, people will be happy to do this.
This is the ration of the amount of gross profit per labour dollar spent. Quite simply are your team members being efficient and productive.
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One of the dangers of visionary entrepreneurs like myself is that we always want to believe in people and how they are going to add so much value to our business. What this means is that we often hire people potentially before the business is ready for them.
Labour will generally be one of your largest expenses so it is critical that you ensure you are getting the output you require. If you are running out of capital look at your team and see if everyone is pulling their weight.
If they are not, you need to quickly coach them to get them to the level that you require or get them out. Nothing sucks capital (financial and moral) more out of a business than an underperforming team member.
I have a mentor who is one of Australia’s most successful entrepreneurs. She has a saying that “sales fixes everything!” When you honestly think about this statement it is hard to fault it. You need cash to grow your business. How do you get cash? You need to sell! Sales needs to be a continuos focus in your business. If you ever stop making it a focus it will come back to bite you at some point as sales will just suddenly dry up.
Do you have a create sales strategy? Are you measuring your sales activity. Spending more time investing in your sales strategy will be one of the greatest investments you can make.
So next time you are complaining how lack of capital is the reason that your business is not succeeding, have an honest look at the three above points and see if there is something you can do to improve them.
The funny thing is – if you have a great cash flow cycle, an efficient labour force and a humming sales strategy people will be wanting to throw capital your way.