An entrepreneur with a new idea is really a big excited kid, full of excitement, enthusiasm, energy and a cavalier type attitude, e.g. this is the best idea EVER. Unfortunately, even fantastic ideas from a concept or service perspective have not been interrogated from a business process flow and resource perspective. So now I know you are thinking, HUH? Surely if the idea is great then it will work? No, that is not the case.
Many entrepreneurs will usually bootstrap an operation (Link http://www.investopedia.com/terms/b/bootstrap.asp) which means that financial resources are limited, well, unless you are the next big silicon valley unicorn and have investors ploughing money into the ship. Most of us regular folk just have to use our own personal resources in this process. The problem is that when planning the financial resources, we tend to underestimate our requirements and do not always consider how our business process flow impacts on those financial resources.
So, what do I mean? Let me give you an example:
Andrew decides to start his own accounting business. Andrew has 10 clients that will move across to him when he does go off on his own, so he decides to rent a small office and hire an accountant. This allows Andrew to focus on client engagement and growth. The company expenses are R35 000 per month (excluding Andrew’s salary). Andrew believes that this is not a problem as he has R150 000 saved for this venture and his personal monthly expenses are R15 000 per month. Andrew after reviewing all the client quotes sees that it will take 3 months to get to R35 000 revenue and then in month 6 will be R50 000. This all seems to work out, or does it? See below a figurative cashflow statement:
From the above cashflow, we can see that in a perfect world where Andrew invoices and gets paid in the same month, with 100% of his invoices not being queried/challenged or delayed in payment, he would be able to get through the first 6 months. Unfortunately, this does not take into account the reality of his type of business and the process flow e.g. accountants usually invoice at month end and then give up to 30 days for payment (I have excluded bad debts and other variables). In this scenario Andrew runs out of cash just after month 4 and without further funding he will no longer be able to sustain the business.
This is why understanding your type of business and the business flow is important when dealing with your financial sustainability and how managing your debtors and cashflow can become mission critical.
Having an outsourced debtor’s solution allows you to focus on your business whilst ensuring the money keeps rolling in.
Debtors Solutions provides this exact service, not only in assisting in the debtor’s solution but by helping identify areas of your business process that may require some attention. Please contact Alison Baretta on firstname.lastname@example.org or 0825763744
Written by Jason Cooper