“Don’t ignore your cashflow implores former Dragons’ Den star Doug Richard, who was speaking at Surviving and Thriving: controlling costs to boost your business, the British Library’s latest Inspiring Entrepreneurs session.”
And despite frequent success the founder of bootcamp education series, School for Startups, is not afraid to get his hands dirty or too proud to take a deal when necessity demands.
After all, that’s how he survived the recession of the 1990s, selling and “taking every order I could get”.
Furthermore, selling doesn’t have to be expensive. “If you’re starting a business and you’re already spending money on marketing then you are making a mistake. Do the things that don’t cost money first,” he advises. If you’re online, buy a good book on SEO and spend a “boring weekend” reading it, he says, as it’ll save you getting ripped off. List the words associated with your business and make sure even the pics on your site are labelled with these ‘invisible’ terms. It’s a lesson Heather Gorringe, founder of worms and gardening good supply business Wiggly Wigglers, learnt the hard way. “In the beginning we did everything wrong.” The company advertised too much in a bid to drive sales and paid too little heed to costs, a misguided error.
Instead, she switched approach, a key factor in the company’s future success. She got closer to customers, extracting from them what they really wanted, and just as close to suppliers and their needs. Founder of Charles Tyrwhitt Shirts, Nick Wheeler, puts it slightly differently, but clearly concurs. “You will be a great business when your own people love you, your suppliers love you, and customers love you,” he promises, reiterating: “Don’t neglect your suppliers.”
Following Richard’s bootstrapping methods, Gorringe also slashed her advertising costs by 80% after her initial forays and now focuses on inexpensive social media, connecting with customers via Twitter and de-stocking (selling off stock) using an RSS feed, which also creates site stickiness. She also forced herself to embrace the areas of business she had no passion or ability in – the dreaded accounts. As she told attendees, she lives by a Winston Churchill quote: “Success is the ability to go from one failure to another with no loss of enthusiasm.”
With Churchill’s words still ringing, business finance expert Johnny Martin tells his clients to familiarise themselves with the language and basics of finance and business, warning ominously that failure to do so leads to insolvency. “Don’t start a business until you are ready to get to grips with finance. Know where you are – how much cash you’ve got, what is in the bank, who you owe money to and who owes you money. This is the working capital and it is the lifeblood of the business.”
And get everything that has value in writing, adds Martin, or you could waste critical time chasing your tail – or your debtors. “You will find that when things start to get tough, unwritten agreements can unravel. It can take a long time for people to pay you in many cases so you have to get a process to manage that working capital.”
Know your numbers
Do a cashflow forecast every six to nine months, at least, he says. That way you will be able to act faster if troubles occur. To do this and predict sales, simply multiply the number of units you expect to sell based on previous sales levels by the unit price. So that’s ‘unit x price’. There’s a technique for this that may help called ‘sensitivity’, whereby you can apply a percentage increase or decrease to the sum.
There are other basics too, continues Martin. You need to ensure you understand that there is a difference between variable and fixed costs. And then you should apply that old adage, ‘turnover’s vanity; profit’s sanity’, while adding ‘…and net profit’s reality’. Put simply, Gross Profit Margin = (Revenue – Cost of Sales), then take away all your fixed costs. “Companies that survive monitor the gross profit margin and protect it,” says Martin. “Have a clear idea of what your margin is and don’t chase sales in expense of margin. In this economic climate, it might be best to focus on the products that are bringing in the most money. And keep fixed costs as low as possible whenever you can e.g. hire don’t buy if possible.”
Make plan, Follow plan
Finally, cmypitch poses this question: What is the best piece of advice you would give to an entrepreneur about to start a business or one who is already in business? “Make a plan, think it through and try to follow it,” answers Richard. Finance guru Martin adds that market research, a unique value proposition and price point are key. And continuing his earlier theme, smart shirts retailer Wheeler says: “Have a real passion for what you are doing. You have to love it more than anything else. And keep your focus, learn when to say no and to stop doing too many things.”
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