Tag Archives: Cashflow

Ten things they don’t tell you in business school about running your own business

Water lillies
Nurture your business

By Marianne Curphey

1. Business plans don’t work…. or rather, they don’t come to fruition in the ways you expect. When you have a fledging business it is very hard to predict the speed and way in which it will develop over the next year, never mind the next five years. So although it is important to have goals and objectives, don’t be too rigid in implementing them if new opportunities come along.

2. The business idea you start with won’t be the one you finish up with. One of the most exciting things about running your own business is watching it evolve into a bigger and better project than the one you started with. Dream big!

3. Nobody pays on time. Many a brilliant business has suffered and/or collapsed because creditors were tardy in paying up. Plan for late payment, and put measures in place to ensure you chase up unpaid invoices at regular intervals. This means having a robust system for logging work, invoices and payments, which will become more important as your business grows.

4. It’s harder work….and better fun than you could ever imagine. No more office politics, boring meetings, tiresome commutes to work…..but also no more being paid to chat by the water cooler or take long lunchbreaks.

5.People in PAYE jobs secretly think you watch daytime TV all the time. Some of them say it to your face. Relax, they’re just jealous. Disarm them by telling them how they too can make the break for freedom.

6. Cashflow, not a great business concept, is what keeps your business afloat in the long run. You can have a whole stadium’s worth of fantastic ideas, brilliantly executed, but if you don’t keep on top of your utility bills, tax payments, NI costs and other administrative tasks, your business will fail.

7. Diversification can save you in tough times. Try to think of as many ways as possible to monetise your ideas, both through active and passive sources of income. Think creatively.

8. Carry your business card everywhere. There is nowhere that’s out of bounds for networking, as long as you do it subtly and respectfully.

9. You are the brand. Your unique blend of skills and experience are what makes your business special.

10. Admin takes up about 50% of your time. When you plan your week, make sure you factor in enough time to deal with the boring stuff – bills, insurance, and well as the fun bits.

In my next blog I’ll be looking at how to manage your finances in a small business,

regards, Marianne

How to get your pricing right

By Marianne Curphey

While watching  re-runs of The Apprentice, it struck me forcibly how little time or attention the contestants gave to working out how they were going to make a profit from their business.

For example in one exercise the two teams were given the task of selling fast food to commuters with an initial budget of £250 for ingredients. Despite backgrounds in management, accountancy and sales, few team members seemed to grasp the concept that getting the pricing strategy right was absolutely fundamental to the success or failure of the project. They didn’t have profit targets and they weren’t keeping track of whether they were generating a decent return on Alan Sugar’s investment.

These would-be entrepreneurs demonstrated a trait which often leads to business failure – a lack of understanding of the fundamental importance of cash-flow.

If they had been in a real-life business environment, looking for investment from business angels (wealthy investors who support fledgling businesses), they would have been eaten alive. They may be called “angels”, but professional investors make Lord Sugar look like a pussy cat. They have very specific targets for the return on their initial investment, a timetable for exiting when they have made the money they want, and no hesitation in pulling the plug (ie the funding) if it is clear things are not working out.

In fact, it could be argued, as entrepreneur Luke Johnson does here in the Daily Mail, that The Apprentice does nothing to show would-be business owners the practical aspects of running a company, and instead sacrifices genuine business insight for pure reality-show entertainment.

So, forget about the circus show of television, and start to think like a real entrepreneur. Whether you plan to expand your business to the point where you will be seeking outside investment, or you want to keep it relatively small, but successful, you need to understand the principles of profit, cash-flow and putting together a balance sheet.

So here’s how to get your pricing right:

1. Work out your fixed costs: what are the recurring items or bills that you need to purchase or pay for each month in order to run your business?

2.  What are your variable costs? One-off or unusual items (capital expenditure: buying a long-term asset for the business), annual insurance costs (you can break this down into a per-month sum or build it into an annual balance sheet projection)

3. What is your  “break-even” point?  What do you need to make each month to pay basic bills like utilities, phone, rent or leasing costs for your premises, stock storage costs or staff wages? This is the amount you need just to stay afloat and keep your bank manager happy.

4. What is the cost involved per unit? ie providing each service or doing an individual job – ie travel costs, materials, phone calls?

5. What is the value your product or service provides to your customers? The Business Link website has an excellent explanation of the difference between the cost to you of providing the service, the financial reward you receive in return (ie the price) and the value the customer places on your service.

6. What benefits do you provide and on what criteria do customers buy – reliability, reputation, speed of delivery?

7. Establish your value. This is vital, because it helps you work out your unique selling point (USP), enables you to explain to customers why you are different from your competitors, and means you are not selling on price only, which is a dangerous game.

You may have the most brilliant business idea in history, but without a sound understanding of the way finance works, you will struggle to grow your fledging business. One of the most common mistakes when starting out is to concentrate too much on the names, logos, website or premises of your business, and spend too little time on working out the hardcore finances.

In my next blog I will be looking about how to assess your prices in comparison to your competitors, and whether to pursue volume or a smaller number of high-value sales.

regards, Marianne