Date: 18/11/2004
Kit-out your office the sensible way - Budgeting Tips
By Ben Kittow, Boxed Office
http://www.boxedoffice.co.uk
© Copyright 2004
To profit on time, on budget and with enough cash.
It is encouraging to note that every year thousands of people elect to start up a business - full of enthusiasm and dreams of a more flexible life, or perhaps focussed on a lucrative exit having created a valuable and saleable asset. The DTI's Small Business Service survey unit tracked a total of 189,000 companies registering for VAT during 2003 which of course is only a small part of the hundreds of thousands of SME start ups who dip under the VAT radar screen. Somewhat depressingly, the total number of VAT de-registrations during 2003 was 174,000. These figures are only one form of measurement and despite current failure rates of E-businesses running far higher than the average, the general survival rate is not nearly as bleak as this limited illustration suggests. In the world of franchising for example, an altogether brighter picture is being painted - Franchisors proudly prove that more than 90% of all franchisees survive beyond the critical 3 year mark (source: British Franchising Association www.british-franchise.org) So why do businesses fail?
Assuming that the drivers of the business have done their homework on market, customer and pricing, have an effective means of selling their product and service and the company adheres to best practice in terms of customer care, the company stands a good chance of succeeding. A massive black cloud remains however - that of cash. Those of us who have started up brand new businesses know that the most difficult line of a business plan to accurately predict is the cashflow requirement to see the company through to cash positive trading. Having been through the start up cycle, many company owners will volunteer that they made a number of assumptions which proved to be somewhat optimistic:
• Time to get the company actually operational
Incorporation is remarkably fast these days with electronic filing, but finding and negotiating premises, establishing a bank account (made far more difficult by recent anti fraud requirements) recruiting staff, as well as getting systems and telecoms in place, certainly rank highly in the list of items that take longer than anticipated
• Time to get early sales rolling
Companies, and the people who make them work, take a while to run in - pitches, service and efficiency in general all rely on practice and on day one you seldom have this in abundance
• Time to get paid
Many companies, including mature ones, can often come unstuck by being too focussed on the top sales line. Having the systems and people in place to raise and chase invoices is critical although this is not always as prioritised at it should be in the early stages.
• Am I running a business, or is the business running me?
The list of tasks faced to get a business up and running can be daunting. The tasks are often either mundane, or require specialist knowledge. The key issue is that of time spent on such things prior to concentrating on actually promoting the business. None of us need to become best friends with our local BT technical department for example - others can do such things for you and in so doing take away the time and perhaps hassle.
So what do we learn from this?
Managing the cash
Armed with a convincing business plan and the fresh enthusiasm of a typical new venture, many companies make the mistake of burning cash at the early stages - something which can come back to haunt them later.
A company with excellent pipeline sales but no immediate cash may not be around long enough to benefit from tantalisingly close cash profits.
It is always preferable to manage cash with a bit of a buffer - suppliers rarely give new starts trade accounts credit, your sales line may fluctuate and the chances are you will receive a few unexpected bills. If you are able to absorb such bad "luck", you are more likely to keep the company focussed on creating its future. More often than not, running out of cash starts a negative spin from which companies do not recover.
Assets or liabilities?
One specific area where cash can be swallowed up is that of key assets. Determining exactly what equipment you will need in the first few years of a business and before trading patterns have developed is a particularly tough task. The process of selecting equipment can be particularly time consuming - add up the time spent chasing brochures, visiting showrooms, web browsing and subsequent discussions with salespeople - it is remarkably time consuming.
All too often assets purchased with cash at the start up stage prove to be inadequate or unnecessary - by which time the company's cash reserves have been depleted and quite frankly might have been better invested in generating new sales or establishing sound credit control procedures.
Jack of all trades
Many tasks can be eased by getting the right people to do them - the temptation to try to do everything yourself frequently leads to back logs and delays, both of which cost you in terms of time and inevitably cash.
The moral of the story
Asset financing shouldn't always conjure up negative connotations -check the small print and you will find that some companies offer very reasonable terms with clear and flexible payment structures. Likewise getting companies to assist you through your daunting "To Do" list is entirely feasible, getting a company to do both, well now that really would be something…
Contact & further Information
Ben Kittow is a director of Boxed Office UK Ltd and has many years experience in plc and ltd companies as a director and owner
visit www.boxedoffice.co.uk
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