Don't be too concerned about profit - look after the cash

[Robtheblob]

It is a well known fact that most new businesses that fail do so because they run out of cash, not necessarily because they do not generate profit. So here are my top tips for a start up of any size:
1) Budget for what you know you need to spend - then make sure you get more funding than required, there will always be additional costs and the business may not take off as you hope.
2) Don't blow the budget too quickly. for example, if you are trading online, then don't wade in with a big adwords budget too quickly. Feel your way in gently and position yourself gradually.
3) Look after the cash. Think about cash flow (and maintaining that cash position with the buffer in (1) for as long as possible. Don't spend money you don't have to. If you can do it yourself - do it yourself. Don't be fooled into thinking someone else will do a much better job - think value for money!
4) For every pound/dollar/euro you spend, think about how much turnover you need to get that pound back. If your margins are low, it will make you think twice before you buy and even with higher with a 50% margin, every pound spent needs to generate two in revenue!
5) Don't be afraid to change it! If something isn't working and its costing money, review it quickly and if necessary change or even stop what you are doing. Enterprise is partially about risk - but moreover it is about assessing, and re-assessing your position. If its broke - fix it fast. If it isn't broke - try and make it more efficient - FAST!
I run a successful small online business and have learnt the above through experience. It might sound obvious but it is easy to get carried away with what you are doing/spending before the cash starts to flow back the other way.

 

[GreatSEO]

Thanks for that so if I run my business for the next year at a major loss and don't look at my profit margins I should be fine.

Come on I have heard some flannel in the past but it is profit that makes a business work and survive and debt that destroys businesses everyday.

Some of what you say is right but you need to definately keep an eye on making sure that you make a profit without a doubt

Dave

 

[Robtheblob]

Thanks for that so if I run my business for the next year at a major loss and don't look at my profit margins I should be fine.

Come on I have heard some flannel in the past but it is profit that makes a business work and survive and debt that destroys businesses everyday.

Some of what you say is right but you need to definately keep an eye on making sure that you make a profit without a doubt

Dave

No Dave, if you are running at a loss your business will obviously fail but to make your profit you have to look after the cash. My advice is to new businesses who can get carried away with all the things they "have to have" or "need to buy." Often, you don't have to have it or need to buy it - that's wasting money and you'll probably not make a profit. If you watch how you spend, you have a chance of making the profit you need but as soon as you've run out of cash you're finished!

 

[Mpg]

"A business an survive without profits but will fail without cashflow"
Theo Paphitis his auto biography

 

[Faith28]

Isn't the post office a perfect example of a business that makes a loss but because it is cash rich it survives..or did I imagine this...

 

[cjd]

Grateful though we all are for your advice, it's more usual to say hello and get to know people before dispensing it.

 

[Robtheblob]

Grateful though we all are for your wisdom, it's more usual to say hello and get to know people a little first.

Hi all,

Sorry I'm being a little forward! I registered a while back, sent a few mails to people on a subject which was of concern to me at the time and then was sent an email by business zome inviting me to share my "wisdom" on cashflow in exchange for £200 of champagne! So here I am! How is everyone anyway?

I'm taking a look around and there is some really interesting stuff.

 

It is a well known fact that most new businesses that fail do so because they run out of cash, not necessarily because they do not generate profit. So here are my top tips for a start up of any size:
1) Budget for what you know you need to spend - then make sure you get more funding than required, there will always be additional costs and the business may not take off as you hope.
2) Don't blow the budget too quickly. for example, if you are trading online, then don't wade in with a big adwords budget too quickly. Feel your way in gently and position yourself gradually.
3) Look after the cash. Think about cash flow (and maintaining that cash position with the buffer in (1) for as long as possible. Don't spend money you don't have to. If you can do it yourself - do it yourself. Don't be fooled into thinking someone else will do a much better job - think value for money!
4) For every pound/dollar/euro you spend, think about how much turnover you need to get that pound back. If your margins are low, it will make you think twice before you buy and even with higher with a 50% margin, every pound spent needs to generate two in revenue!
5) Don't be afraid to change it! If something isn't working and its costing money, review it quickly and if necessary change or even stop what you are doing. Enterprise is partially about risk - but moreover it is about assessing, and re-assessing your position. If its broke - fix it fast. If it isn't broke - try and make it more efficient - FAST!
I run a successful small online business and have learnt the above through experience. It might sound obvious but it is easy to get carried away with what you are doing/spending before the cash starts to flow back the other way.

So basically you is saying don't spend the dough on things you don't need.

And don't worry about the profit.?

to quote :

"Turnover is vanity profit is sanity,customers are king"


Great Post.

Earl

 

[malcolmpiper]

Cash is king!!

Robtheblob - aren't you really talking about knowing your breakeven point?

 

[gessoandgold]

I heard; turnover is vanity, profit is sanity, cashflow is reality.

 

[3 MORE YEARS]

All very valid points. I think a lot of people forget that to launch a successful online business nowadays (even a small one) can cost quite a lot, especially if you want to do it properly.

Ryan

 

It is a well known fact that most new businesses that fail do so because they run out of cash, not necessarily because they do not generate profit. So here are my top tips for a start up of any size:
1) Budget for what you know you need to spend - then make sure you get more funding than required, there will always be additional costs and the business may not take off as you hope.
2) Don't blow the budget too quickly. for example, if you are trading online, then don't wade in with a big adwords budget too quickly. Feel your way in gently and position yourself gradually.
3) Look after the cash. Think about cash flow (and maintaining that cash position with the buffer in (1) for as long as possible. Don't spend money you don't have to. If you can do it yourself - do it yourself. Don't be fooled into thinking someone else will do a much better job - think value for money!
4) For every pound/dollar/euro you spend, think about how much turnover you need to get that pound back. If your margins are low, it will make you think twice before you buy and even with higher with a 50% margin, every pound spent needs to generate two in revenue!
5) Don't be afraid to change it! If something isn't working and its costing money, review it quickly and if necessary change or even stop what you are doing. Enterprise is partially about risk - but moreover it is about assessing, and re-assessing your position. If its broke - fix it fast. If it isn't broke - try and make it more efficient - FAST!
I run a successful small online business and have learnt the above through experience. It might sound obvious but it is easy to get carried away with what you are doing/spending before the cash starts to flow back the other way.

A good & valid point. There are still an astonishing number of businesses who treat invoices - and sometimes even verbal order - as money in the bank.

The cruel but true analogy I heard was ' Losses are a cancer and will kill you slowly; cashflow is a heart-attack & will kill you instantly'

Some of the worst offenders are (were) companies who have just got their hands on large lumps of VC.

An interesting discilpine is to treat all money as your own so instead of thinking 'it's only £50' think about that £50 going straight into your own pocket.

Good thread!

 

[Chris Ashdown]

I think what he was trying to say was treat cashflow as your main objective rather than either profit or turnover

For example i had a new company many years ago which was computerised embroidey, I had about £18000 to start with, I brought a brand new embroidery machine with £14000 and used the remained for stock etc, We needed to go begging after a few months

What I could have done but the bank did not suggest it, was to put down a deposit and buy over terms where I would have kept most of the £18000 for reserves ie cash

nowdays you start a company on the web and most customers pay by card so like a shop you get cash straight away "great"

Then along comes a large firm and asks for a discount for a large number of items and a account to go with it, profit from the order is good say 40% even after discount so you take the plunge and give him credit for £xxx he pays after 45 days as normal with credit facilities ( payment terms 30 days from invoice normally means payment at end of next month on a payment run) so now you are actin like a bank instead of getting paid maybe the day after you brought your good you have brought the goods but have to wait 45 days for the money

Anothe large customer comes along and you do the same, profit is great on your sales but you dont have enogh cash to buy new stock, you either have to get a loan at high cost if you can get one or go bust

Cashflow is the reason most companies go bust, they make a profit on all transactions but dont keep control of the money

Better to turn down large orders if you cannot support them than take them and run out of cash

 

[webwam]

I think sometimes you can start a better business if you have less initial capital. It forces you to be more creative and think harder about your money. If you are just starting and have a huge lump sum, it is easy to waste it on things that you think are essential at the time, but don't actually directly affect your income.

I used to know a very successful businessman who always said that the only things you need to start a business with are a pen, notepad and a telephone.

Whilst I think this is a little over-simplified, I have met a lot more people who got stuck because they got too carried away in the early stages. They thought you had to have a fantastic website, office, fish tank etc. before you could actually make any money, and then they ran out of working capital a few months later.

 

[Chris Ashdown]

The other thing is to put aside as many months salary as you can before you start paying youself from the company, otherwise you inject the money into the company at startup and then pay your wages out of the company and at he same time paytax and NI on your own money again basically paying it twice

 

[Robtheblob]

A good & valid point. There are still an astonishing number of businesses who treat invoices - and sometimes even verbal order - as money in the bank.

The cruel but true analogy I heard was ' Losses are a cancer and will kill you slowly; cashflow is a heart-attack & will kill you instantly'

Good thread!

Like it! And let's be honest, neither cancer nor a heart attack are what we want!

 

[Robtheblob]

I think sometimes you can start a better business if you have less initial capital. It forces you to be more creative and think harder about your money. If you are just starting and have a huge lump sum, it is easy to waste it on things that you think are essential at the time, but don't actually directly affect your income.

I used to know a very successful businessman who always said that the only things you need to start a business with are a pen, notepad and a telephone.

Whilst I think this is a little over-simplified, I have met a lot more people who got stuck because they got too carried away in the early stages. They thought you had to have a fantastic website, office, fish tank etc. before you could actually make any money, and then they ran out of working capital a few months later.

Oh now, a fishtank is an essential! Especially for an online business! Haha! It is so true that people take their money spend it and wonder why its not coming back!

I started this thread months ago in reply to one of the UKBF mail shots - just a bit of fun. It has suddenly re-viatlised and I'm pleased people are finding it interesting enough to discuss again! BTW - I'm following my own advice and doing ok!

 

[littlelady]

I am so glad I joined on here it is so useful and helpful and I hope to be of some help to you guys and gals too.

 

[gessoandgold]

Oh now, a fishtank is an essential! Especially for an online business! Haha! It is so true that people take their money spend it and wonder why its not coming back!!

Fishtanks ARE essential. Why are there no fishtank windscreens? And they call this civilisation ...

 

[Castroggi]

I've delivered courses on Finance for non-financial Managers for a local Chamber of Commerce since 1997 and have recently put the course content on line at centralaccounting.co.uk/accounting-basics it's entirely free and genuinely no strings attached so if you want to try this online/ distance learning course please just go ahead.

I hope you find it useful, and in case you're wondering what's in it for me - I'm an accountant and put this online for my own clients as it's easier to help a client who understands the basics, and if their business thrives, then so does mine.