So You Want to Be Business Owner ?

-- SO YOU WANT TO BE A BUSINESS OWNER? ---

Starting a business should be exciting - however, many budding entrepreneurs - especially those that are starting a business for the first time and have only worked in the "corporate world" do not pay attention to basic issues concerning the financial management of their new business

The vast majority of new business owners do not have formal education or training in finance (nor should they) — they are usually starting up what they hope will be the next Star Bucks. New business owners concentrate on hiring advertising, management, and super salespeople. 

Usually,  they’re very involved with their core product or service. However, they often neglect some of their new company's key areas - finance being one of the most critical.

New entrepreneurs know that they "should" have a working knowledge of finance, but tell themselves that they will get around to finances once they are more profitable...

5 important concepts that all business owners need to be aware of: 

• CASH IS KING - Always.

• • Never run out of money. As a business owner, you do NOT want to have more month at the end of your money.
  • Know your short term and long term burn rate. The amount of money flowing out of your business each month. 
  • Never run out of money. Did I mention that cash is king?

• Have financial systems in place from day one. What are financial systems?
• • COST Accounting spreadsheets - You should know how much net profit you are generating monthly , weekly and even daily.
  • BOOKKEEPING System -  ideally a software package (Quick Books is a good program) Keep in mind - garbage in garbage out. Get help setting up your accounting system
  • INVENTORY Management System - Know how much 'captive profit' you have in your warehouse.

• Have Metrics for EVERYTHING - How long do your employees take for lunch? Do you have a weekly cash flow report? How many unproductive hours per employee ? How long are your clients taking to pay? What is your discount rate? What is your square foot : sales ratio?, Etc...

• Have a business plan in place - Your banker, your CPA and other professional advisers tell you that you should have  a business plan in place if you need to borrow money. This is only the beginning. You need a Business Plan ALWAYS. "If you do not know where you are going - You WILL end up somewhere else." Be aware that a true business plan is not a static document that that you only pull out when you need to borrow money. It should be an ongoing reference continually updated as your business model evolves (and it should be customer - driven...)

• Choose your business professionals wisely - Yes, I am sure that your wife's cousin's brother's stepson works for a bank, but is he really competent?  or ( like many "banking relationship managers" ) just a salesperson trying to convince you to take on a loan that "every business should have" (the deal of the week) that you do not need, do not want and your business cannot afford. It may be tempting to use your wifeʼs  friendʼs daughter as your CPA, because she is the local business socialite in a networking group, but, familiarity does NOT always equate with competence. 

Starting a new business should be exciting and fun - and it can be -  if you have competent financial advocates on your side.

More to follow on this subject in a future post...