All start-up entrepreneurs should understand their business finances before they launch
By Ed Hatton
An entrepreneur is planning to start cattle farming, but has very little economic or entrepreneurial background as he works in the medicine field. He wants to know what the growth in capital ia that is needed by a business during its first year to sustain further development and growth.
This is question all start-up entrepreneurs should ask themselves. The focus is usually on the initial capital needed to start operations, but sustaining the business past the first year is equally important.
To answer the question we need to take a step back to the business plan for the new venture. This should start with how much the entrepreneur wants from the venture as a monthly income and / or capital gain. That will tell him how many calves he will have to sell each year if he makes assumptions of the sale price and cost of breeding, rearing and sale. The estimated yield will tell him how many breeding cows he will need. The size of the breeding herd and the capacity of the land to produce grazing and fodder will tell him how much land, labour and infrastructure he needs. These factors will determine his start up capital needs Then he needs to do the cash conversion cycle (from when cash is laid out to produce stock to the time cash is paid as a result of sales) and work out the operating cost of running the business during that period to establish his working capital needs.
This is a business like any other. The entrepreneur has to identify his target market and see what it needs, decide how to compete, then get the right product (breed and quantity) and distribution channel to sell his breeding stock, find the right production facility (land and infrastructure) and identify the right labour and management to handle the required volume. Continue reading
Responding to a need is a great way to start a business, but it is not as simple as it seems
An entrepreneur has recognised that government departments and some private companies often pay their suppliers very late, or make wrong payments. Together with her spouse who runs a human relations consulting firm which is fully accredited with ETDP-SETA, she has the knowledge and expertise to set up policies and train people to fix this problem and so improve service delivery. However she has not be able to form a strong sales and promotion strategy.
This woman dreams of becoming an entrepreneur while she runs the department which pays suppliers in a large company. She sees entrepreneurs struggling to get paid on time by government departments, local authorities and some large companies. She knows she could put the right policies, processes and training in place to turn the situation around. Her spouse could do the training and the combined service would enable departments to make payments on time. President Zuma, in his State of the Nation address suggested that this improvement in service delivery was vital, so the need for the service is there.
Who has the need?
This business opportunity looks like a textbook case of identifying an unmet need and having the capacity to fill that need. But, and this is a lesson for all entrepreneurs, first ask who has the need. For instance consider out of order traffic lights. The motorist desperately needs them fixed, but the duty pointsmen earn their living from them. The roads department is judged on performance but has harsh budget restrictions, so they may have mixed feelings. The point is that answering a need may have to include appropriate strategies if the party with the need is different to the party who will pay. Continue reading
This article was written by Ed Hatton for
the column the Start up Coach and published by the South African edition of
Entrepreneur magazine in February 2011 and is posted here by their kind
Growing a business in a niche market
needs a strong understanding of your clients.
A young entrepreneur has developed a personal PA service. Her company handles the
personal, social and home management aspects of her clients’ lives. She wants
to market her service to entrepreneurs, as she believes this is her ideal
target market: people who do not have time to take care of daily non-business
related chores themselves. However she is not sure how to cost-effectively
market her service to such a niche client base.
This entrepreneur has devised a service to support busy and successful people who do
not have the time to manage homes, social activities, gifts, pets, bills,
licenses and the many other activities that are a part of modern lifestyles.
She has identified her target market as successful entrepreneurs who do not have
support systems in place. As a typical start-up the company needs steady income
from contracted clients. Like many entrepreneurs she had developed a website,
and placed a couple of adverts in a lifestyle related magazine, but has had no
I wonder how often I have heard the phrase ‘and we didn’t even get ONE lead from that…’ Remember this: A single advert or
sign that describes your business is highly unlikely to bring sales leads.
Advertising is great at generating enquiries from prospective clients, but only
as a part of a campaign. Start-ups with limited marketing budgets usually need
to find alternate ways of finding prospects. Continue reading
If you are planning to open a new business you will need to think of many different things. Here are a few really key questions that you may not have thought about. If you cannot answer any one of these satisfactorily you may be taking unnecessary risks. With the horrifying failure rate of new start up businesses you would want to reduce risk as much as possible, so if any of these questions cannot be answered or leave you feeling uneasy, then my advice would be to attend to this urgently, even if it means delaying your launch.
If you look at the ranks of business books in any bookstore you will see lots of ‘how to’ books, and even more ‘how I did it’ guides. So if you just follow the route taken by Richard Branson or Robert Kiyosaki or Jack Welsh you too can be a success. Web sites (including my own business site) are filled with case studies of business successes. But where could you go if you wanted to study failure, if you wanted to avoid doing what caused the downfall of the failed entrepreneur?
Contrast that with learning to drive a car or fly an aeroplane. You may read stories of famous racing drivers or see films of daring fighter pilots, but that is not how you will train. Instead you will be taught how many ways there are to get it wrong, and what to do about it. Driving a car or flying a plane start with the belief that success is required, that failure is to be avoided. Business training seems to work on the basis that failure is expected, that success is for the few high priests of entrepreneurship, and we may be able to stave off disaster by following their lead. How peculiar. Continue reading
Starting a new business is an exhilarating and scary step across a line that non-entrepreneurs will never experience or understand. It’s a bit like going solo if you trained as a pilot. Suddenly there is nobody to back you up, nobody to rescue you, nobody to ask. It is the most incredible sense of achievement and excitement, and a bit frightening too. You can create in the corporate world but there is something special about creating a new enterprise that moves the sense of satisfaction into a different league.
The pointers below are there to help new entrepreneurs to reduce their risk and increase their profitability and enjoyment. And to avoid tripping over things that have felled others – I trust they will be valuable.
It has become fashionable to discuss only business plans in the entrepreneurial environment. The marketing plan should be incorporated within the business plan, but many business plans provide only a cursory look at marketing. One reason is that many business plans are produced with the sole purpose of gaining finance for an enterprise, and so the focus is on financial projections, staff required and management experience. Once the finance has been secured the plan can be buried with all the other tiresome paperwork.
This is sad, because my belief is that most entrepreneurial failures and businesses in difficulty arise from one simple fact – they do not sell enough! And many times the reason that they do not sell enough is that their marketing and sales is unplanned, and poorly funded, the salespeople are insufficiently trained and the person responsible for marketing lacks either knowledge or clout or both.
As Dwight Eisenhower famously said “Plans are nothing, planning is everything”. The process of marketing planning will force research and debate and question assumptions. It will point to the need to set aside budget and train people. And it will link performance to actions.
Even with a carefully thought out marketing plan there is still a risk of the plan not having the desired effect. In my experience the failure of marketing plans comes from some or all of the following: Continue reading