The five keys to ensuring you don't crash and burn

3. Have a funding strategy

You can have the best idea and execution strategy in the world, but without cash your business will go nowhere.

Once you know why and know your business idea is viable, the success of your start-up becomes about the money. Cash provides the “oxygen” your business needs to start, grow and then flourish.

It is important, therefore, that you fully understand your cash needs and have a comprehensive funding strategy in place.

Your funding strategy should answer three key questions:

• Application: How much cash is needed and what will it be spent on.
• Timing: When is the cash needed.
• Source: Where will the cash come from.

Aside from your savings, or those of your friends and family, cash is available to you from three other sources:

• Bank lending.
• Equity investors.
• One or more of the 600+ grants available to businesses in Australia.

For most start-ups, cash is often hard to get. Therefore, it is important that you minimise cash burn during your start-up phase by “bootstrapping”, and employing lean start-up methodologies.

4. Work out what type of business you are

Knowing what type of business you want will help you work out what your key milestones will be.

There are four types of businesses:

• Scalable businesses that are designed for rapid growth when opportunity arises. These businesses need specific strategies and sufficient cash to fund ambitious growth plans.
• Saleable businesses, established with a purpose to be built and sold within a certain timeframe for a target sale price. Again, this could require an ambitious growth strategy and funding plan designed to build value in the business.
• Small business entrepreneurs who look for steady growth designed to improve their financial and/or lifestyle position and prepare them for a suitably funded retirement. Steady growth means less time pressure when it comes to planned strategies for the business. However, it’s still important to have the capacity and resources required to take advantage of opportunities when they arise.
• Buy yourself a job businesses, where an owner earns about the same as they would as someone else’s employee. Because these businesses are so heavily reliant on the owner for their knowledge, skills, production, delivery and to manage the business as well, there is limited capacity to build the business. This means there’s less need for funding to execute growth strategies. However, having a risk and contingency plan and the resources to execute it becomes a key focus.

5. Take advice

Start-up owners often try to be a jack of all trades, covering as many bases and roles as possible while they get their business off the ground. At some point in time, as their business grows, they find they become too stretched to do it all.

They’re forced to assess their personal skills and interests to decide what effective role they should play in the business going forward, while outsourcing the rest.

To avoid this trap, you should identify your skills and interests at the outset and employ the support of mentors and advisors that will assist you with uncovering, clarifying, testing, executing and taking advantage of the key points I’ve listed above. By doing so, you access expertise, form winning strategies and implement the best processes at the outset.

This is the key to achieving your business goals.

Marc Peskett is a director of MPR Group a Melbourne based business that provides finance lending, grants advisory and capital raising services as well as business advisory, tax, outsourced accounting, and wealth management to fast growing small to medium enterprises. MPR Group is a member of the Proactive Accountants Network.

You can follow Marc on Twitter @mpeskett