- Written by webmin
- Published: 07 Sep 2010
If you ask most people what their greatest business need is, they’ll answer “money.” Whether that business has been around for a few years, is a start-up venture or is still a plan written on a scrap of paper, many entrepreneurs believe that the only thing holding them back is a bigger supply of money.
That’s probably the furthest thing from the truth. If you give a struggling business more money, chances are good that all it’s going to do is lose more money. Why? Because that business hasn’t figured out what its true business issues are. The owner hasn’t taken the time to address the genuine problems facing his or her business — so more money is only going to feed those problems.
The truth is, there is plenty of money in the world today. Banks are sitting on money, investors are sitting on money and individuals are sitting on money, all waiting for the right opportunity to put that money to work. And while there are millions of ideas for businesses out there, very few people can take those ideas, connect them with the money and turn them into successful ventures.
Lesson No. 1: Know What You Need – And Why You Need It.
Greg: As a banker, I constantly see people who think all they need is more money. For example, I had a prospect who came into the bank who owned an ice cream store. He and his buddy had gone into business together and each of them had put in $100,000, and now they’re both broke and don’t know what to do. They were delinquent on payroll, owed back taxes and had no business plan. A business plan needs to be clearly articulated, to include directions how one will reach their vision. Dreams don’t have directions.
What he did have was a big pile of receipts — a pretty good sign that he didn’t know where he had been or where he was going. He was completely blind. He thought they had a competitive advantage with this ice cream they were selling, but he hadn’t even thought about how many scoops of ice cream he had to sell just to pay to finish out his building! If you can’t put your competitive advantage into numbers, is it really a competitive advantage?
You have to know how much money you need now. You have to know why you need it. And you have to know how much you’re going to need going forward.
Ron: So, he hadn’t figured out what his metrics were? Metrics are the numerical measurements of performance for a business. The simplest might be sales per month, but many more are needed to understand your business, such as more complex ones like average client acquisition cost. (For more information on client acquisition cost, visit Ron’s web site and blog, www.MrMissionPossible.com.) Money was the last thing he needed! He needed to find out how he got that tax lien — and what he was going to do differently if they ran short of money.
In [my book] Green Weenies, we had a question: “How big is the hole and how are we going to fill it?” In other words, how big is the deficit, and what plan can we devise to erase it? It’s an estimate of how much sales or income you’ll need to solve the problem. A lot of people just don’t spend enough time — especially when they’re in trouble and even when they’re just starting out — trying to understand how big the hole is and how they are going to fill it.
Greg: That’s a good point. I asked this prospect, “How much money are you going to lose every month?” and he said, “I don’t know that we do lose money every month.” He had no idea what his financial statements said.
Ron: Customers who are heading to the bank looking for a loan need to look over their financial statements and meet with their accountant to make sure they understand what all the numbers