Making "Business Success" the means to your end
Step 1: Business viability
by Paula Jubinville
AQUEOUS Advisory Group
My mother always told me to start with the end in mind – even before Steven Covey (author of "The 7 Habits of Highly Effective People", published by Franklin Covey Co.) made millions with this simple concept. For new entrepreneurs, in the early stages of creating their businesses without the comfort of a predefined structure, sometimes the "end" is their only point of reference.
But is success in business the "end" or the "means"? Stated another way, is a successful business the result you hope to achieve, or is it the way you hope to achieve your ultimate result – your personal (emotional and financial) goals?
"New economy" emerging entrepreneurs, many who are leaving Canadian corporations, support and promote the view that business success is uniquely, not absolutely, defined. Each individual's definition of "business success" need only meet their personal criteria for how they want to live their life.
Clarifying your personal goals
If you agree that business success is relative to the business's ability to help you achieve your personal goals, you will need to consider which goals can be met, which can't be met and which may get in the way of your business. As well, it's important to know the difference between your goals and your needs. Needs tend to be short-term, immediate requirements. Goals are objectives for the future that one plans to achieve through a balanced combination of intellectual and financial capital, within the framework of business or career.
Understanding the difference between business viability and business success
So what is the difference between a viable business and a successful business? Often, these words are used interchangeably yet the difference is subtle and worth noting, especially for new entrepreneurs who may find the start-up stage disorienting.
First, viability means the business endeavour can exist in the real world, under normal circumstances. Mere existence, however, likely falls far short of a new entrepreneur's personal goals. Business success, by simple extension, is about fulfilling your goals, by means of the business. Viability is, in fact, a prerequisite for success. Your business has to survive in the marketplace before it can grow and evolve to the next level of serving you, the business owner.
The true test of viability is the real world. A business plan approximates that world – you have to make educated guesses about revenues, expenses and the timing of your cash flow (regardless of whether or not you write it down in advance). Sketching out the guesses helps you deconstruct your estimates or projections into small parts (e.g. units, orders, hours, minutes). Seeing all the factors at play then helps you understand the relationship between each part, making it easier for you to evaluate your estimates. For example, breaking a monthly sales target down to the number of orders or contracts you need to take in each week, each working day and finally, each hour, lets you see that closing a sale every 15 minutes may be unrealistic.
What is Viability?
Some entrepreneurs define viability as the business's ability to generate enough cash flow to cover operating costs. However, confusing cash flow with revenues, sales or even cash in the bank, is a common pitfall with new entrepreneurs. In fact, cash flow is literally about the 'flow' of cash in and out of the business.
Balancing the Viability Equation
Cash flow is like 'oxygen' to a business. Inevitably, any business that can't generate sufficient cash flow suffocates.
Our limited resources (e.g. time, or money) are like are in a diver's tank – eventually they diminish to the point where they no longer sustain the business's life. Before diving in , emerging entrepreneurs need to be aware of how much capital they have in reserve (called "capital reserve"), and whether it is enough to sustain their business through the early stages. The capital reserve will need to sustain the business until it can generate enough positive cash flow so it can "breathe" on its own. The capital reserve may have to be increased if the viability equation gets out of balance.
Knowing when the equation is off-balance
When an owner is busy working, but never seems to "make any money" (a common entrepreneurial dilemma) the business may lose its viability. Poor operating practices (e.g. slow invoicing, slow follow-up on outstanding accounts receivable, under-charging for your product or service) may be the cause, and left unchecked, they can sabotage viability. It's almost never too later to adjust the equation – to take the actions needed to ensure your business's viability remains intact.
As seen in Woman Newsmagazine – Winter 1997
AQUEOUS Advisory Group provides real-life, real-time business advice & support for Canadian entrepreneurs starting, running & growing their businesses. AQUEOUS has pioneered providing comprehensive business advice to entrepreneurs and is acknowledged for its unique and special focus on women business owners. So whether you are ...
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