When times are tough, you can generally look towards opportunities around ownership, property, finances (i.e., loans, refinancing or financial structuring), staffing, assets and the actual products and services. When the company has low value, the shares are typically cheaper, and then the company accelerates and so do those shareholdings. This means that the value at a low point of the business due to cashflow issues causes people to do desperate things and discounts the actual value potential of those shares. Strategies have to also consider control. For example, a capital injection from loans allows the owners to stay in control, however getting capital injections from new shareholders deplete your shareholdings. This includes the ‘liquidity’ of assets, meaning how easy it is to turn assets into cash, such as comparing the high liquidity of selling a share compared to a property. The banks are more open to establishing these risk treatments when the going is good, not when you are struggling and need it. When the business is going well (or has the funding in place) that is the time to really focus on establishing the risk strategy of getting key safeguards like a bank overdraft in place and setting up the right level of bank accounts or financial structure to manage capex (capital expenditure), opex (operational expenditure), tax and other obligations (e.g., payroll tax, leave loading, superannuation contributions etc) and discrepancy funding. Remembering that cashflow is king, a profitable business can still go bankrupt when its cashflow management is poor. The old story of ‘80% of businesses fail in the first 5 years’ although not likely accurate in all countries as rule of thumb. According to Bloomberg², only 2 entrepreneurs out of every 10 make it past the first 18 months.Ĭertainly good business acumen, experience and having a client desired product or service are important, but you have to also look towards smart back-end business operations. This extends to how we focus on financial security, spending and safety nets to get us over the difficult times. Some of the greatest businesses started in the toughest of times¹ (e.g., Microsoft, Apple, Disney, FedEx, GE etc). I imagine it shows that starting with little cashflow can set up good spending practices and innovative thinking around leveraging time and assets upfront.
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