I was asked by my friend and business coach Marc Mawhinney to provide a guest post for www.marcmawhinney.com. Marc works with entrepreneurs and those who are starting their entrepreneurial journey. Here is what I put together it appeared last week:
I’ve owned 5 businesses. I regularly work with business owners to improve their systems and processes. I’ve also had a career as someone who helped people buy and sell businesses and I can tell you that I’ve learned a lot from all the successful (and not so) entrepreneurs that I’ve met over the years. When asked to come and do a guest blog post for Marc about what to remember when starting a business, here’s what comes to mind:
Cash Flow: The purpose of a business is to make money. It should do this every month, right from the start. Do not encumber your young enterprise with obligations it can’t meet like costly overhead at the beginning. Use outsourcing and rent/borrow as much as you can to keep monthly commitments to a minimum. ‘Burn rates’ are for Internet businesses that have been capitalized with millions of dollars from venture capitalists.
Vendor trade credit: Most people think about making the sale and not how they’re going to be paid. The awful truth is that when you’re new, you may find customers that your competitors don’t want because they are terrible at paying on time. What are the normal payment terms in your industry? Should you be extending trade credit to your customers? What is reasonable and how will you enforce the credit terms? A bad debt can kill a new business. Accepting credit cards to eliminate receivables can be a smart move for new companies.
Over-estimating sales penetration: Did you hear the joke about the entrepreneur who said he was being conservative about estimating that he could capture 1% of a billion-dollar industry? I see this all the time. That’s not how you estimate sales. Your sales projections should be based on these questions: how many calls are going to be made each day? How many sales appointments will this result in? How many of these appointments will lead to a sale? How long will it take to deliver the service/product? How long will it take to get paid? As you can see, sales are a function of how many clients you can touch and sell to, not how big a market is.