Knowing Everything But Understanding Nothing

Running a business is simply managing a series of events, linked to the resources it has available to it, in order to achieve a series of desired outcomes. Inputs manipulated and ordered to change their current state into a new state of outputs (or outcomes).

The reason most businesses exist is to add value to the inputs, in order to create desirable outcomes where the sum of the value of this outcome is greater than the initial cost of the input added to the cost of changing their state into an outcome. we term this difference as profit. People who invest in their business hope for a better return on that investment than they would by leaving it deposited in a less risky vehicle such as a bank or building society.

Businesses go through several stages and in many cases, several iterations. The first great idea should lead onto the second, third, fourth etc. Start up finance is often low but as the business grows, mezzanine finance (bank loans/family loans/friends loans etc) and even onto angel investment through selling a share of the potential in exchange for cash to grow.

People that start business are very often not the best people to run their businesses. They are the ideas people, the passion people and the main shareholders (usually). They have the vision for the business. They can see all of the parts, they can see the marketability, they usually understand their target audience. But the art is to get everything in place to manage the resources effectively and grow through the steps. Steps are when a business has to fund the increase in resources whilst driving the sales income to cover the cost of this increase (growth).

Funding growth is the hardest thing for any business to manage well. Businesses rarely ever run out of ides, they hardly ever run out of markets, but 90% of the time they fail because they run out of cash. Real cash, not the transactional notional cash we see in the P&L account, cash that they own.

Business leaders often see everything, they see the components of success, they know that if they can organise them well they will reap the rewards…very few truly know the order in which things must happen or where the steps are that will drain them of cash.

Managing a business is managing cash…it’s the only thing that I guarantee you will run out of from time to time…don’t let it close you down.