Building a business requires one to have a solid plan and know exactly where they are going from the start.
Andile Hote, head of new business at Mercantile Bank, shares insights on what it takes to build a solid foundation for a business.
Manage your cash flow from day one
Cash constraints can be one of the biggest factors limiting the growth of a new business. This means that good cash flow control is crucial from the first day of trade. Effective credit management and tight control of overdue debts forms an essential part of managing cash flow.
New work or orders is what every business strives for, but be careful of biting off more than you can chew. It is easy to fall into the trap of overtrading where you take on more business than your current resources – whether it be cash, staff or assets – can sustain. Overtrading can place such a strain on the working capital a business has available that it can be extremely hard to recover.
It is also important to plan ahead and ensure that you are ready to arrange the most suitable and affordable funding as the financing needs of your business change over time. Sound financial management and ensuring that your business has adequate cash on hand will make it easier to secure financing, whether you are speaking to a potential investor or applying for a loan from a bank.
Get the right people
As an entrepreneur you are the driving force behind creating and growing your new business. But it is important to ensure that you add the right people to your team – whether it is hiring an accountant to help manage your finances or a shop assistant to help customers. As your business grows you will need to delegate the responsibility for particular areas to specialists.
Advice from someone with experience can be invaluable in building a solid foundation for your business. For many successful entrepreneurs, learning to listen to and implement advice can be one of their biggest challenges. However, it can be essential if you want to make the most of new opportunities.
Find the right mentor or advisor early on to share your challenges and ideas with. It is very likely that many other entrepreneurs have faced the same obstacles you are struggling with, and drawing on their experience could save you both time and money.
Keep up with your market
Most entrepreneurs realise that they need access to a market if they hope to sell their great new product or service. Without a market, a new business will find itself stuck in the starting blocks. However, this does not mean that this market will always remain the correct target for your business. Business conditions change continually, so businesses need to do continuous market research as well.
Without continuous research, you run the risk of making business decisions based on out-of-date information. This means that you need to ingrain ongoing market research into your business’s culture and operations early on. Taking the time to talk your customers pays off, while suppliers and other business partners can also be important sources of market information.
Put the right systems in place
Bigger businesses often boast that they can be more efficient because of their scale, but operating as efficiently as possible given the resources at your disposable should be an immediate priority from the moment you start doing business.
Putting in the right infrastructure and systems can be a key contributor to efficiency and an investment in this will pay off in both the short and the long term. You will benefit every day from more effective operations and if you ever decide sell your business, demonstrating that it has well-run, efficient systems will be an important part of proving its value.
Be ready for growth
A solid foundation is only the first step towards ensuring the success of your business, but you also need to be ready to welcome change as it grows. Complacency can be a major threat to a growing business. It is easy to assume that your business will remain successful because it has been doing well so far. Revisit and update your business plan regularly. This will help to ensure that you remain aware of changing market conditions and to think about how you need to respond to them.
As an entrepreneur you need to be fully committed to your strategy, even if it takes you out of your comfort zone. This may involve making hard decisions. But if you are not prepared to make them, you may risk putting your business at a dangerous competitive disadvantage.