SMEs - are we realistic in our expectations

When we commence our new business venture, how realistic are we in our expectations of how the sales will progress? Most business plans I see are seldom realistic! They invariably show the business making profit from the first day. This seldom if ever happens!!

If it does happen, it is often when a very popular franchise has been purchased, or if the business has commenced activity with a pre-sold order book.

This is normally a red flag for any financier who has been approached for finance for the new business. Realistically there is seldom much chance of most businesses breaking even before the end of the first six months, and it can often take a lot longer.

A way to resolve this problem is to do your sales budgets first, and then your expense budgets. Too often sales budgets are done after the expense budget, and then made to fit the occasion. Your first sales budget is normally based on gut feeel and hopefully also some market research. Rely on it and do not change it to make sure you are profitable from an early stage. If the business takes a while to turm profitable then it is quite likely realistic. If it takes longer than you can afford to carry it or raise funds to carry it, then drop the idea and find a new idea and then start the process again. The purpose is to find a profitable business, not try to force our dreams to come true even if they never can .

REMEMBER THE PURPOSE OF BUSINESS IS TO CREATE WEALTH, NOT DESTROY IT! So please review your sales projections before seeking finance and assess their realism!!

SMEs - the stress of start up

What do you do if you suddenly find you have sold your business? Yes, it can happen that the process is so quick, that you suddenly find yourself without a business. You have some capital, but not enough to live off, for very long. You need to live off the capital and start a new business really quick before you consume the capital. The pressure you suddenly find yourself under, can reduce your ability to think clearly and inhibit your creative processes.

A quick rule of thumb is to try and start a business that will give you some real income fairly quickly, especially if your capital base is fairly small. Remember that most businesses, particularly business-to-business sales, often have a 3 to 6 month lead time. Do you have enough capital to last 6 months? If not look for a small cash only retail opportunity. This may then cover your living expenses while at the same time preserving your capital for the development of another business with greater growth opportunities.

Once the other business is up and running you can then sell off the small cash retail business or let your wife or kids run it. Remember to ensure it has immediate sales, and no long sales cycles, which invariably means a consumer type product or service. However, even this kind of business, unless a franchise outlet, is likely to become a major source of profit overnight. However, it may generate sufficient cash flow to sustain the business into the profit zone.