The Tribune

By Simon Cooper

Res Socius

When planning to visit an unfamiliar place on holiday or business, I always call on Google maps to find out how to get there first. Very much the same applies to beginning a start-up company or any other project. You need a vision of how you are going to get there, and what it is you’ll need along the way.

Before discussing resource and cash flow issues, I would like to start off with a more direct question. Back to travelling for a moment, some of us prefer to stay at home. By the same token, some of us are happy taking business risks, while others are more comfortable working for other people. Which kind are you?

The next consideration is to decide your business goals, and here you need to be both pragmatic and specific. Practical, because what you plan to do must be achievable, and detailed because you must be able to measure progress towards it.

I can’t over-emphasise how important this phase is. If you are travelling but you don’t know where you’re heading, you’ll end up down a blind alley. If you don’t know where you’re going in business, then you may as well throw your money at a bet on a bad horse.

Once you have set your business goals, it’s time to sit back and ask yourself why anybody is likely to do business with you in the first place. How sure are you that your product will be in demand? Why would people choose you to supply it? And in what quantities will they order?

So far so good; you’ve figured out your likely turnover, but what about resources (and, more importantly, how much they will cost you over time)? These include stock, technology, facilities and people. Do not guess this one either. Find out and make sure.

All businesses begin by costing their owners money. It takes time to get to market, during which there are expenses to pay. It takes even more time to ramp up to critical mass when you start making profit. Most start-ups that fail trip over at least one of these two hurdles.

Simple probability analysis can help avoid this. You go about this by creating three parallel scenarios for time to market and time to profit:

a) Your wildest dream when everything goes perfect.

b) Your worst nightmare when everything goes pear-shaped.

c) On sober reflection, what’s most likely to happen.

The weighted average of these is your most probability forecast. Calculate it using the formula [a + b + (4 x c)]. Note that the more extreme the value of the outriders, the greater their effect becomes. Now that you have a better handle on what you’re looking at (and presumably still want to do business), the final stage is to spreadsheet the ‘in’ and ‘out’ cash flows according to what has evolved into an embryonic business plan. After that, it is your call whether to go ahead or not.

It is these dilemmas and imponderables that persuade my customers to buy a business for sale from me instead. They have the big advantage of having historic data on which to base their decisions. My job as business broker is to help determine the extent to which this data is a reliable indicator of the future.

NB: Simon Cooper is a founding partner of Res Socius, a firm authorised by the Bahamas Investment Authority to facilitate the sale and purchase of businesses, and provide management consultancy services. Contact 376-1256 or visit www.ressocius.com.