I was talking with a client a couple of weeks ago about his plans for 2018, and he said “well I don’t really have any dramatic plans, but I’d love to know it’s not all going to fall off a cliff in 6 months”.
Now, there’s no reason why they should fall off a cliff; after 30 years of trading they clearly know what they’re doing and are well established in their market place. But this doesn’t stop him from having those fears.
And I really know that feeling. I’m in my 18th year of trading now, which I find hard to believe because I still feel like I’m still getting to grips with this “running a business” lark – I’m not sure any of us can ever relax and assume we’ve got it all cracked.
You know when that niggling fear pops into your mind, and you get that sick-to-the-stomach feeling? Something like this perhaps?
- What if I never get another client / customer / job?
- What if I lose that customer?
- What if that job goes wrong?
- What if my marketing stops working / doesn’t work
- What if the economy slows down?
- What if Fred left, what would we do?
- What if “something bad” happens?
- What will Brexit mean? Aghhhh… ( we don’t know, stop wasting energy!)
I know you’ve been there!
And it’s only natural that we have these fears from time to time, but wouldn’t it be great to know that the way we’ve built our business means we’ve got enough confidence to dismiss these fears?
And to know that even if the worst happened, we’ve got enough time and money to respond without going into melt-down.
We can do that if we build a robust business.
Why does it matter that your business is robust?
You know I like to bang on about this stuff, but the business failure rates are far too high in this country. Too many small businesses with great products, services and potential don’t survive. But it doesn’t need to be that way.
Business that struggle or fail CAN become strong businesses if they just do the right things financially.
Bottom line of why you need a robust business – you want it to survive, you surely want it do well and make sure your future is taken care of. (Unless you’re particularly fond of impoverished struggle?)
Losing key staff
I was with another client recently and a key member of her staff has just resigned to go travelling. This is a major blow for her and it will be a tricky role to recruit for. BUT she’s built a robust business over the last 3 years which means something like this can’t and won’t hurt her business. She has time and money to calmly plan the next move, rather than react in panic and potentially make a wrong decision that could be costly and distracting.
She has all her taxes put away, has buffer cash built up, has long term visibility on her income, runs a profitable business and has a very clear financial strategy. I know she’ll be ok.
Another client a couple of years ago lost her whole management team overnight when they quit to set up in competition. Buffer cash meant she could react in calm way and was able to withstand a situation that would have put many other businesses under.
What does a robust business look like (and how you do measure up?)
- Route to market – you’re very sure of your route to market and you know exactly how to get the customers you need, when you need them. Although not an easy one, I’m convinced this is the key to a sustainable business (and one I continue to work hard at)
- Take the long-term view – running a business is a long-term thing for most owners, so do yourself a favour and don’t take out more dividends than your business can afford. Otherwise you’re just robbing your future self
- Taxes – make sure your VAT and corporation tax are put away in a separate bank account – most definitely not your money and has no place in your working capital or current account!
- Buffer cash – once your taxes are put away, turn your attention to building buffer cash. Ideally 2-3 months overheads (I’m anal and I like to have a year) so that if, or when the unexpected happens you’ve got cash to see you through, cash to invest in the solution to the problem.
- Build retained profits – spend less than you earn, and keep building your retained profit. I like to work to at least 10% net retained profit after tax and dividends (this is where your buffer cash will come from – keeping the money you make)
- Visibility – it’s so important that you have visibility as far as you can into the next few months ahead. Anything that tells you what future months’ sales and profit are likely to be. If you can see at least 3 months ahead then you have time to take action if things are off target:
o Order book
o Cash flow forecast
- Protect yourself – some things that happen are avoidable, or you could have protected yourself against the outcomes. So make sure you have things like a shareholder’s agreement (boring I know, but they can stop a nuclear fallout that could take your business down). Have you got Key Man protection, could you afford to replace a key director if they were ill long-term?
- Management information – of course an absolute must is having monthly management information that tells you everything you need to know about your business so you can spot problems quickly, look ahead to see what’s happening and to know you have full control
- Having a financial strategy – you know exactly what you’re out to achieve, how to do it and how to measure it
- Planning – you plan your days, weeks and months and have control of your time
And what does a fragile business look like?
- You’re heavily reliant on one key customer. Think Carillion. Whatever the reason or justification this is unlikely to end well. Don’t let one customer control your destiny.
- You don’t really know where your customers come from; it’s all a bit random if you’re honest!
- Not having any spare cash – living month to month
- Not having taxes put away, and perhaps scrabbling to pay the VAT each quarter, and did the Corporation Tax come as a shock?
- You don’t have any visibility on future months – tending to plan ahead a few days or weeks if you’re lucky
- No cash flow planning or management
- No management information and not really knowing how profitable you are (or could you be making losses?)
- You haven’t really got a plan and you just sort of make it up as you go along
- One bit of bad luck could be a disaster
- You do a lot of panicking, crisis management and live in reaction
- You’re not sure where the future pay-off is going to be – will it all be worth it?
Heard it all before!
And just in case you think I’m repeating myself and you’ve heard some of this stuff before, I make no apology for that! As Tony Robbins says, repetition is the mother of all skills. The more you hear it, the more likely it is to stick.
I often have people come up to me when I’m speaking somewhere, people who I’ve never met before, but who proudly tell me they have their taxes put away and have built up buffer cash – just from reading my blog. Fantastic! Another business who just vastly increased their chances of being successful in the long term!