1.6A MONEY TALKS
Money is important. We need it for everything that we do. It buys you freedom in the way of opportunity, travel, convenience, comfort, education, experience and personal growth.
For me, freedom has bought me the opportunity to develop this business course. It’s pushing me and challenging me to put down on paper everything I know. From that process, it is also improving me as a business owner. I not only love helping other people learn, and am keen to share my knowledge, but I also get enjoyment out of dealing with my finances every day.
By shifting, reallocating, adjusting and problem solving, I find myself enjoying my one hour of financial structuring every morning. As an entrepreneur, you can probably identify with these traits: you’re a big-picture thinker who sees problems everywhere and you love to solve them. So while you may not think you are money-minded, your character is likely to be already aligned with this way of thinking – you just don’t know it yet.
We have grown up with the societal belief that money is either, the root of all evil or worse, a topic to be completely avoided. (At least the former gets us talking about it.)
Money needed to be a regular subject in school. It needed to be a weekly conversation with our parents, where they shared with us their latest purchases, income streams, investments, returns and mistakes. Instead, they whispered in the kitchen, creating either a sense of perpetual uncertainty or a sense that money could never run out. Either way, we watched it disappear under the rug. It left kids wondering what was going on, it left teenagers wondering how to use it, and it left young adults wondering how the heck they were ever going to buy a home in which to live.
It’s possible that this is why so many young businesses go bust.
If we had the audacity to have the conversation from the very beginning, we might talk about money as freely as we do about holidays – they’re exciting, useful, valuable, easy and fun; they open us up to creativity and new perspectives; and they provide us with an untethered feeling of simultaneous adventure and contentment.
If we were brave enough to talk about money like this, we would have a better understanding of how it comes and goes, and how to build on it. We’d take calculated risks based on years of shared and real-life knowledge. We’d be more willing to push ourselves, to trust ourselves and to back ourselves. And we’d have a higher success rate in business.
So, let’s put it back on the table. Let’s all agree to talk more freely, openly, excitedly and unapologetically about money!
1.6B MONEY MATTERS
Without a doubt, this is our reason for developing Navig8biz courses; to reduce this statistic, prevent business failure, improve lives, and potentially save lives. This statistic needn’t be so high, but it takes planning and a strong understanding of your numbers to avoid start-up failure.
1.6C FINANCIAL MODELLING PER PRODUCT
1.6D BREAKING EVEN
Eg. LET THEM EAT CAKE business. Our Pastry-chef-turned-founder, Pam, needs to understand what it will cost her to get a cupcake into the hands of the customer. Break it down.
- Cost of ingredients per cupcake.
- Retail price point per cupcake. (She will have to undergo market research as per Module 1.4 and sample as many competitors as possible – their business model, their price point, their location, their quality, and their cupcakes too!)
- Where is Pam selling the cupcakes? Online, wholesale locally, wholesale nationally, in store. What do these logistics cost per cupcake?
- Is Pam providing a delivery or pick up service?
- Pam needs to hire a freelance Marketing Manager for five hours per week. How many cupcakes does she need to sell before she can pay these fees?
- What’s the break even point per cupcake?
- Can Pam continue tweaking until the model provides a profit? If not, she might be best to shut up shop before even opening.
- If Pam has to wake up at 3am to make enough cupcakes to cover her costs, and she LIVES for making cupcakes, then go Pam. However, if she doesn’t want to wake up at 3am, then Pam needs to remodel the business, or find an entirely new business idea.
1.6E THE NITTY GRITTY
In your financial modelling, there is a critical piece of information that is often overlooked: How will your debtors/clients pay?
- What are your terms of payment? Cash? 7 days, 30 days or 120 days?
- Are you sure they will pay in a timely manner?
- Without considering this, you may discover a significant hole in your cash on a month-to-month basis. How will you survive this?
- What terms can your business sustain and are those terms acceptable to your clients?
- Understand how your competitors are paid, and find out their terms of payment. A mystery shop will do the trick.
1.6F SALES CHANNELS AND GROWTH STRATEGY
- Be open and honest about your relationship with money.
- Financial modelling is critical to the success of your new business.
- Understand your breakeven point.
- Know your competitors, and their price points.
- Evaluate your sales channels and create a growth strategy.
- If you think you aren’t money-minded, you can change your mind!
- This modelling should be an ongoing working document throughout the life of your business and is not solely relevant to new business.
- Remodelling should be done regularly, and is fun to do.