I recently had the pleasure of being involved in judging the StartupSmart Awards and was asked to review entrants’ submissions.
There’s a multitude of talent and ideas out there, being brought to life by brave business owners (many of them first-timers) who have decided to take the plunge into business ownership.
While they obviously have the passion and belief in their concept, there were a number of gaps in how they explain their business. I see these common gaps time and again in my role as an advisor to SMEs.
Addressing them will help any new or potential business owner in their endeavours to establish and maintain a successful business:
1. What problem are you solving?
First and foremost you need to be very clear about what problem you are solving or need you are satisfying and for whom? Are you addressing a problem lots of people want to solve (or a need they want filled) and does your solution solve the problem or satisfy the need in a compelling way.
2. Show me the money
While getting rich might not be your motivation for becoming a business owner, making money is a necessary by-product. You must be very clear about your forecasted revenues and exactly how you’re going to achieve them, in order to meet your business and personal financial needs.
You’ll need a budget and cashflow forecast to understand when you need cash. Often it’s not how much you need but when you need it that makes a new business come unstuck.
Having an accurate picture of your month-by-month cash needs in the first year and every year afterwards will provide the motivation for implementing a solid plan to make money.
As for the plan to achieve that, it helps to be granular and break down the activities of the business in a quantifiable way. There are many tools you can use to achieve this. One of ours is called the growth equation, which helps you break down your revenue targets into the key drivers: number of customers, number of transactions and transaction value.
3. How you’ll get money to make money
Businesses need cash to make cash. Once you have profits you can reinvest them to fund business growth, but you’ll need external sources to get started and most likely to supplement the business’ cash needs throughout its life. While many SMEs are familiar with debt and equity, not enough know about or pursue grants.
Grants are a valuable source of cash that can be used to meet a plethora of business activities including growth, innovation, investing in equipment, training, exporting, and digital development.
The best way to maximise your grants and external funding opportunities is to create a funding plan, so you can be ready well in advance of when the actual need for cash arises.
Click here for a link to a blog I’ve previously written that covers what you need to know about funding plans.
4. Think about scale
Your next thought should be how scalable delivering your product and service is. Scale means growth, revenue and if you’ve got your operating model right, then this should equate to more profit. In order to achieve this, your growth needs to be sustainable. To this end you need to consider what additional resources such as cash, supply inputs, staff and distribution points you need to facilitate and service that scalability.
If you consider this at the outset, you’ll be in a better position to take advantage of opportunities to scale early on and more quickly establish a solid footprint for your business and achieve a quicker financial return on investment for you as its owner.
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