If your business is in the startup phase, it can be hard to transition into the next stage and get everything right. Stick with us as we chat about transitioning through the business phases, understanding your financials, nailing your forecasting, and getting the best systems in place to set yourself up for success.
Taking off the training wheels
So, first things first – how do you know you’re ready to move out of the startup phase? We believe that being ‘ready’ is a decision, not a feeling. For some businesses, the startup phase can last weeks; for others it can be months, or even years. There’s no rule book when it comes to starting a business, which is why you need people like us in your corner!
Graduating from the startup phase to the next level depends largely on your business type and the market you’re operating in. Typically, New Zealand businesses stay in the startup phase for one to two years, and during that period they’re building up their client base, their systems, their finances, and their staff. Some people can do that very quickly, e.g. businesses with low overheads and high demand.
One signal might be that the bank balance is no longer negative every month, and you’re starting to see some green in those numbers. Party time! You might find that there’s a larger marketing presence and people know a little bit more about your business, or you might have a fixed establishment (so an actual location or two), and be starting to employ full time staff, rather than just contractors. Basically, things have become more permanent, rather than variable.
Forecasting for the win
We love forecasting and unlike the weather forecasts, we like to get it right. We work with businesses to make their future forecasting visible and real, which creates a sense of accountability (often via a well-meaning reality check). For example, what might happen to your business in 3 to 6 months if you don’t meet your targets now? Will your business survive through 2022 if you don’t meet your 2021 Christmas targets?
With a startup, it’s all about having as much future insight as possible, which is very difficult. The key is to get a forecast in place as soon as possible, even though it’s almost impossible to get it right straight off the bat. The idea with a forecast is to put your stake in the sand (i.e. set your targets) based on the knowledge you have right now, and then you update it on a regular basis, as you gain more knowledge. During this process, you start to see patterns develop, and that’s where we start moving away from startup and into the second and third stages of a business.
Engaging the right people
A big chunk of New Zealand businesses fail in the first three to five years, so it’s important to have access to professional help and advice – especially as a new business – so that you’re not blindsided by things you mightn’t have been expecting, and you’re giving your baby the best chance at success.
Take tax rules that apply for your first year in business, for example. They can be a sneaky little critter that accountants often don’t go out of their way to tell people about, and that tax can catch up on you in one to two years’ time. That’s just one of the many things we consider when forecasting for our clients.
It’s also crucial to communicate with your bank while you’re going through the forecasting process, because you’ll need them when the time comes to ask for more money. Your banker needs to be taken on the journey with your business, so they slowly gain more knowledge around your forecasts, and they begin to believe in them. Your growth will end up sucking cash out of the business, and you’ll need more finance to grow, so you need your bank sitting next to you rather than on the other side of the table.
Setting yourself up for success
It doesn’t have to take a lot of time to get your systems and processes in check when your business moves from a startup to an established business. In fact, you probably won’t even notice the transition; there might just be a few more systems in place than you started with, or you might be using a different type of software. If we set the right systems up and we get some good forecasts in place at the start, it’s usually just a matter of expanding them.
There’s a chapter in The E Myth by Michael Gerber that we love, it focuses on two brothers who set up a business in America. They had about 20 different roles they needed for that business – but it was just the two of them – so they wrote role descriptions for every single one of those roles and put each of their names next to them. That meant that as they grew, one of the brothers could offload one of those roles, and there would be another name next to it. The only thing changed was the name because the system had already been developed
The moral of that story is that it’s a really good idea to start with the end goal (or close to what it might be) in mind. A lot of people will make excuses to avoid planning and forecasting, but it’s one of the best things you can do; set the business up as you intend it to continue. That way, you won’t have to do an awful lot when moving from a startup to an established business, because it’s already been set up.
Managing the transition
When we work with businesses transitioning from a startup as their financial coach, there are about three or four key people that need to be involved, depending on the type of company we’re dealing with. It’s usually the business owner, the main decision maker, the person that actually runs the business, or the operations manager (sometimes, they’re all the same person!). Basically, we need to sit down with the people that make it all happen. There’s also the business coach (if there is one), the mortgage broker, the lawyer, and maybe even their insurance agent; just to make sure that all the pieces of the puzzle are in place.
That won’t always be necessary, though. E.g. a lawyer might not be required at the beginning, but if we’re bringing in new shareholders, we might need a shareholders agreement. The insurance agent also might not be required straight away, but as the business grows, we need to ensure the business for the value of that growth.
Delegating like a boss
Business owners often struggle to delegate and let go. Which is understandable – it’s their business that they’ve built up, and it’s often their pride and joy! There’s definitely a “I can do it quicker myself” mentality, which can also be true. But, if you continue to do it quicker yourself, you’re always going to be doing it quicker yourself. So, when we look at businesses, we try to focus on two things: time and money. Money is great, obviously, but we also need to focus on the business owner’s time; it’s worth so much more than you’d think.
How much time do they want to spend in the business? Do they have time to spend on the business? Do they need more family time? Are they having enough holidays? The business needs to work for the owners, so we’ll always take the time factor into account. That usually encourages the business owner to let go a little bit more and get used to delegating.
Working with the right people
Surrounding yourself with ‘Yes people’ is great, but we also need ‘No people’ to balance out the scales. There’s growth in discomfort, so work with someone who’s willing to say no to you, who will force you to pull your head in and take a good look at what’s best for you and your business.
Want to know more about us, let’s chat to see if we can make great business together.