Good afternoon everyone. In the short time I have today, my comments will be addressed towards how proper financial and operational management can assist a business in obtaining funding.
Let’s begin with sobering statistics. Even in the best of times, 20% of new companies don’t make it through the first year. 50% of all companies don’t make it through five years. These statistics were even worse in the pandemic. Half of these failures are due to cash management and financing issues. So, what can you do to improve your odds? I would like to make six specific recommendations. These suggestions are a basic part of business just as blocking and tackling are part of football:
- Give yourself some downtime from running the business. I know, that sounds odd. Work less? I didn’t quite say that. I said take some time away from running the business. Some away time allows you to recharge your batteries and keep up your passion for your business. Your passion is contagious and your employees, vendors, customers and bankers will sense that. You can think about your vision and your mission statement. You can plot your strategy maps (how do I achieve my mission and vision) and construct your scorecard. This will contain a few key performance indicators you use to measure the success of your business. Your stakeholders will want to see all of these eventually.
- Keep a close eye on your cash flow, particularly in these difficult times. Review your cash flow on a weekly basis. Watch your expenditures. Watch your collections. Is that new piece of equipment or that new furniture really necessary? Sadly, I have been an advisor to some entrepreneurs who did not keep an eye on their spending. They committed the cardinal sin in business: the company ran out of money. Once that happens, you are out of the game. You can’t play in the sandbox. Alternatively, any investor will demand a large share of the business to provide you funding. Start preparing a rolling cash flow projection. It will give you great insight into your business and your bankers and investors will be looking for it anyway.
- Focus on your customers. The vast majority of the value of your business is derived from your customers. There are only a few ways to grow your business: you can raise prices of what you sell to your current customers, you can sell more of the same products to your customers, you can sell new products to your customers or you can find new customers. Knowing your customers will help you decide how to maintain your business and grow it. It is a critical part of your strategy map. Remember, new customers are hard to get but not all of your customers are profitable. Your information systems should provide at least a minimal understanding of how profitable your customers are. This will be a roadmap about how to grow your business.
- Don’t forget about your employees. This is a large topic and largely beyond the scope of this chat, but finding good employees in this market will become tougher and tougher as the COVID pandemic subsides. Keep an eye on your employees. Communicate frequently with them. Try to be competitive in wages and benefits. Not only will this be critical for the survival of your business, but it will help you prepare the budget your lenders and investors will want to see.
- Secure your supply chain. Remember, you are not at war with our suppliers. They are a critical part of your supply chain. Nevertheless, you need to make sure your vendors are financially stable. You can’t afford to lose a critical supplier during these tough times.
- Don’t ignore technology. The “New Normal” requires us to understand developing technology. Technology helps by making it easy for your customers to purchase and for you to support these sales. When implemented correctly, new technology gives us insight and knowledge about our business. Try to spend a little bit of that downtime I talked about earlier to learn about new technologies. One expert believes American business advanced technologically three years in the last year due to COVID. Technological change will continue to accelerate so we all need to be comfortable with it.
The author Nassim Taleb would say all organizations fall into three categories. First, there is the fragile. This organization avoids disorder and uncertainty because it would shatter. The second type of organization is robust. It can withstand shock and not change. The third type is the antifragile organization. This is the organization that grows and improves from shocks it encounters. At the end of the day, we want our organizations to be antifragile. That will make them more attractive to lenders and investors. If you tend to the blocking and tackling you win football games. If you tend to the basics of business you will hopefully have an antifragile business with staying power, growing and attractive to investors and lenders.