We know you entrepreneurs don’t like depressing statistics. But if you’re the real deal, you’d be able to handle the truth.
One in three of all Australian SMEs fail in the first year of operation, and within five years, the failure rate goes up to 74%. SME land is no playground, but there is tremendous upside for entrepreneurs who plan and get it right.
So, what are the fundamentals to improve your chances of startup success? Here’s an SME Guide to save your company from crash and burn.
Really Good Planning
You probably already know this , and you should. An initial plan should be for at least the first three years, if not five.
While the outcome will likely be different, the longterm planning process is important as it makes the new entrepreneur apply their mind more fully, and so avoid being nastily surprised by the unknowns. Planning also provides a road map (which will need to be updated as time goes by) towards the desired outcome.
So at the start, think about what is the endgame is to help you set the goals. With goals in place, the new entrepreneur should write a plan covering
- Projections, including Profit &Loss and Cash Flow forecast. Be realistic, build in conservative elements, and run it past your accountant. Forecast on a best case, worst case and average scenario.
- Think about how you are going to fund the business.
- People are clearly a key part of the success of any business. Aim to get the best people you can possibly afford.
- What kind of culture do you want? Culture is often dismissed in small businesses but it is no less important than in global conglomerates. Ensure that you deeply engage with staff, and make it really clear “how we do things around here”. Invest in training them well.
- How are you going to find customers? Think about your target customers and plan for a mix of different channels.
- Marketing creates the leads, sales converts them. Consider how you will source for good sales people and how to reward them. Commission is a great way to motivate staff – you just need to ensure that they can get by on their base and that their commission targets are achievable yet challenging.
- Have a sales plan that includes your unique selling proposition and the activities your sales persons need to undertake to achieve the required number of leads.
Funding your Startup
- How much cash do you need based on your forecasts? Do you have this level of cash or do you have access to external funding? If not, revise your projections so they are in line with your access to funding.
- Talk to a broker to source the best deal for potential external financiers.
Controls, Controls, Controls
It is essential that checks and balances are in place to ensure you have your finger on the pulse.
Here are some basics:
- Bank reconciliations at least weekly – check the opening and closing balances to your original bank statement. Any reconciling items should only be from the last day or two.
- Check your BAS calculations and ensure it has been paid or is scheduled to be paid.
- Do your cash flow forecast monthly and even weekly if things get tight.
- Review your P & L to budget and act on major variances.
- Review your key KPIs (sales, manufacturing etc) and act on any major negative variances.
- Review your business plan monthly. Ensure it is being executed – it should not just be a book end.
Start Small, Think Big
Spend at least a third of your time working on the business, not IN the business. This involves answering:
- How do I generate more leads?
- How do I ensure my sales team are making the most of every lead?
- Am I too dependent on any one supplier or customer?
- Am I getting the best funding facility in terms of funding/asset ratio value and cost?
- Do I have a mentor or business adviser to ask the hard questions about my startup?
Starting a business is, alongside home ownership, one of the great Aussie dreams. Following these four tips could help make “being your own boss” a reality rather than a nightmare.
Greg Charlwood heads national cashflow solutions specialist FactorONE. A passionate supporter of SMEs, Greg has established and managed some of Australia’s main debtor finance businesses and twice chaired industry body DIFA.
