SMEs - finance versus cash

In an earlier SME blog I discussed the need to use the correct finance for the task at hand. A reader concurred with me, and asked how to make the decision, in order to make less demands on cash flow.

I suggested at the request of a reader of the blog, that they need a decision system to assist them in decision making, so that they do not make decisions with their hearts, but rather with their minds. Ideally this is better suited to a decision tree. Maybe someone who is reading this can give it back to me in a graphic format which I can paste onto the blog.

1. Is this a recurring cost ie. Is it going to be paid every month or is it a single payment?
2. If a recurring payment then it is to be funded from working capital.
3. If you have insufficient working capital, then you may need to consider an overdraft facility with your bank or a short to medium term (1 to 3 years) loan from your bank if they do not offer overdraft facilities, depending on the country you are in.
4. If a single payment, is the payment amount for an item that will be used for a period longer than three years?
5. If the item is a consumable item, such as tyres for a vehicle, then pay for it out of working capital.
6. If the item is an asset such as a computer, manufacturing machine, vehicle etc, then it must be considered for purchase as an asset and should be considered for purchase using asset based financing.
7. If the bank or an asset based finance house will finance it, then it is quite likely something that should be financedI hope this is of help and welcome questions. It is rather difficult to do something this potentially complex in a short blog.

Rob Smorfitt

SMEs - business planning and the format (2/2007)

There has been some discussion on the topic of whether a business plan is necessary. but the real issue in mond mind is only one of whether to document the business plan or not. However, whether you believe a business plan should be in writing or not, you still need a format to work to.

A wide variety of formats exists but the one I have found covers all the critical success factors in business is as follows. This is the one I use and teach my clients and students when lecturing.
* Business model
* PESTEL analysis
* SWOT analysis
* Marketing plan
* Human resources plan
* Financial plan
* Harvest plan

Business model - How will this business make it's core profit. It helps to keep the business focused on the key areas and not get distracted.

PESTEL analysis is the external environments which we need to understand, in order to know what their impact on our business might be. They must be considered in the local, regional, continental and global context. The acronym applies to the Political, Economic, Social and cultural, Technological, Environmental and Legislative environments.

SWOT analysis is the internal analysis of the entrepreneur's and the businesses Strengths and Weaknesses, and then using them to consider how the environmental issues will impact negatively as a Threat or positively as an Opportunity for the business.

Marketing plan is the plan on how to grow your business. Read Philip Kotler for more assistance on this subject.

Human resources plan looks at what people and skills you will need to achieve your growth, and allows you to plan for how you will get the skills/people.

Financial plan looks at the financial implications of the marketing and human resources plans.

Harvest plan looks at who will want to buy the business in the future, what the buying triggers will be and what you are likely to want to sell for. This then allows you to decide at what point you will sell the business and harvest the wealth you have created.

Rob Smorfitt