3 Critical Success Factors for Business

What do you bring to the table? 

In my work as a business mentor, I am lucky to meet a lot of people who are desperate to be their own boss  – but don’t know where to start.  They are usually very hard-working, have some good ideas, but don’t know if they have what it takes to be successful.

That’s cool – it’s pretty scary to start a business. Many, many factors go into creating a successful business.  They can seem endless.  

First, you have tangible items.  Finance, products, goods, premises, website.  Then, there are the intangible items.  Persistence, dedication, education, wisdom.  The list goes on.

Both are important.  It’s also true that many people measure their success  – especially in running a small business – in non-financial ways.  Many business owners tell me that it was things such as lifestyle, the freedom to be their own boss and flexibility that led them to start their own business.

The bottom line: unless the income is more than the outgo, you won’t be in business very long.  Therefore, we need to boil all this down and secure the 3 critical success factors for business that you need.

I know, because I have learned the hard way.

 

3 Critical Success Factors for Business

It was back in 1999 right at the height of the dot-com boom. Even in Australia people got a little carried away. 

I was working hard at my job as a financial planner – at this stage, I had zero equity in the business.  One of our clients, Will, had come up with a great idea. He had a background in insurance and had listed an online insurance sales website business on the Australian Stock Exchange. 

He’d issued a prospectus, raised some capital, come up with a fancy ‘dot.com’ in the title (this was virtually compulsory for a tech company in the early 2000s) and was sitting back watching the shares skyrocket. And skyrocket they did, along with everything else that had the word ‘tech’ in it and didn’t earn any revenue.

There was a huge buzz around their project and because Will was a client he made sure even little old me got into the initial public offering. I managed to scrape together the minimum amount of $2,000 and held my breath for when they went public.

 

Deal me in!

All of this was tremendously exciting to observe – the innovation, the hype, the possibility of changing the face of Australian insurance distribution. It wasn’t just this project either; every day new ideas were being put forward and new businesses launched. It seemed as long as you put the letter ‘e’ in front of the name, or it ended with ‘.com’, you were on a winner. 

How could I get involved in a project like this? I loved my job but it seemed staid and boring: there was ‘gold in them thar hills’!

I got some time to talk to Will so I asked him what he thought. I will never forget his question to me: ‘Patrick, you are a nice guy.  But, what do you bring to the table?’ 

In other words, why should anyone want to get involved in business with me? Sure, I was a nice guy but so what? 

3 critical success factors for business

It was time to face reality and realise that actually, I brought very little to the table in terms of adding value to a business enterprise.

 

Business is also all about who you know, and how you can connect those relatinship networks to create economic value.

Critical Success Factor 1: Money

Yep.  You can’t escape the fact that money is the lifeblood of business

Back then, I had to face the facts. I didn’t have any money and, while I wasn’t broke, it was only a few years back that I’d been cleaned out in my divorce. All in all, I was in a rebuilding phase. I’d just bought another house so I was loaded up with debt, not equity. 

I was struggling with this critical success factor. Short of an unknown inheritance or winning the lottery (spoiler alert: neither happened), it was going to be a long haul to get enough money to create a business. 

Importantly, I was taking all the small steps that would add up over time:  

  • I was spending less than I earned.  
  • Every pay, I was saving extra into super, 
  • My home loan repayments were ahead of schedule and
  • I had a small amount invested in the stock market. 

Yes, this was going to be way slower than I would have liked, but all I could do was simply persist in that area, and let compound interest take care of the rest. 

The counter-intuitive realization is that there is more money available than ever before.  For the right business idea, there will never be a shortage of dollars.  

Your challenge with this critical success factor is to find the smartest place to get the money you need, at the lowest price.

 

Critical Success Factor 2: Networks

People do business with people they know and like.  Yes. Even in the internet age.  

For example, an overarching strategy in this business mentor blog is to give you the reader, an insight into who I am as a person, to accelerate the development of trust in me.  How’s that working so far?

Business is also all about who you know, and how you can connect those relationship networks to create economic value.  

If money is the blood, relationships are the veins and arteries that make it flow. When you can connect people and introduce others, that can add value to an enterprise and in turn, you also become valuable to that business.

Again, back then in my situation, the reality was I also was lacking in this critical success factor.  I had no network.  However, I could build relationships, starting today. I was always hearing about networking groups and clubs so it was simply a matter of getting off my butt and doing something about it.  This plan is still yielding results today in my work as a business mentor.

Your challenge with this critical success factor is to have a process in place that allows you to build relationships with others so that you can add value to them and your business.  

 

Critical Success Factor 3: Skills

Also known as Intellectual Property (IP). If you have rare talents or you are acknowledged as a maestro in your field, you will be welcome in any enterprise that requires those talents.

What about my skills back in 2001? Well, I knew how a small financial planning practice worked practically but I had no formal qualifications in management. I had a Diploma in Financial Planning and was a Certified Financial Planner.  

To be honest, although I was a Certified Financial Planner, I hadn’t achieved anywhere near my potential academically.  I was about a 3/10 for this critical success factor.

There was no way I had come close to achieving what, I knew deep down, I was capable of achieving. But deciding what and how to study, as well as paying for it, was going to take some time to plan. 

It was time to stop procrastinating on this and start shaping the development of my future skills. I started to plan for going back to study and this eventually manifested in (among other things) my master’s degree.  

Academic qualifications don’t necessarily guarantee success, but my experience as a business mentor tells me they don’t hurt, either. 

Your challenge is to identify the specific skills and talents that your business will need to thrive and grow to the next level.  

 

So how do I improve these 3 Critical Success Factors?

It’s simple, but it’s not easy.  

Whether you are already in business or wanting to start, you need to be honest in assessing where you are right now with each of these 3 critical success factors.  Then, you need to plan to bridge the gap.

How you do this will vary for each of the 3 critical success factors.

If it is money you need, this can be raised through savings, or debt (borrowing) or equity (bring in partners).  The starting point is to ask two questions:

  1. What money do I need to buy assets right now?
  2. How much will I need to pay running costs over the next 12 months?

Building networks starts with meeting and then helping others.  The best question to ask yourself is ‘who can I send a referral to today’?

There are now so many places where you can learn the knowledge and skills you might need. As well as the universities, there are amazing sites like Skillshare and Brilliant.  

The good news is though, with a plan and with accountability that you can design with your business mentor, you can overcome. 

Some people do this on their own or with their team. 

Others prefer to work with a business mentor like me, to inspire, encourage and hold them accountable to their actions.

Like to know more about how I work with my business mentor clients to achieve their goals?  Contact me and tell me your story!

How a business mentor can help cash flow

They say that  Cash is king. No wait … change that … cash flow is king. No matter what your situation, your place in life and no matter what financial obstacles you may face – if you have cash flow, you have hope. And regardless, asking how a business mentor can help cash flow is an important question.

And, if you have hope you then have a future. But I’m getting a little ahead of myself here. Most people don’t ever even think of cash flow. 

People who are in business have extra challenges with cash flow. In my experience, many businesses go broke, not because they don’t have enough customers but because they mismanage their inflows with their outflows. 

Research backs up my observations: managing the businesses finances is a key reason for bankruptcy.

And that’s not surprising, especially if you are new to being in business.  Your focus is on satisfying your customers, handling logistics, or any of a hundred other things.  As an experienced business mentor, let me tell you now – you need to be thinking day and night about cash flow.

 

How a business mentor can help cash flow

The advantage of having an experienced business mentor is that they have faced these problems before.  Here are the steps that I follow with my clients.

 

Diagnosis

Think of your business as being like a human body. Cash flow is the lifeblood of your business.

Your business bones are how you own and structure your business.  For example, is it a partnership, or a company whose shares are owned by yourself and other investors?  This ownership structure provides the skeleton for you to build your firm. 

The assets of your business are your muscles (aka the Balance Sheet).  These can be tangible items, like computers and desks.  Or they can be intangible, like Intellectual Property or a Patent on something special. The more you work on these, the bigger and stronger they get. And the stronger you are, the more you can achieve. 

But your cash-flow is your business blood. Your cash-flow brings nutrients to both your structure and your muscles. But it’s not enough to just have blood – it has to be moving for it to have any value. (And we have reached the limits of my medical knowledge!)

A business mentor, through looking at your financial records, can diagnose any potential problems.  There could be many reasons.  The most common ones I see are:

  • Generous payment terms
  • Profit margins that are too low
  • Poor planning  

Think of your business as being like a human body. Cash flow is the lifeblood of your business.

Prescription

Let’s assume that the problem is one of planning. The business has got a strong product and good marketing.  There are plenty of clients and prospects.  It is growing rapidly.  But there is never any money left in the bank.

There is a mismatch between income and expenses that is causing cash flow circulation problems.  A little like putting a tourniquet on your arm  – the pinching stops the blood from flowing.

As a business grows, cash flow timing becomes a very important issue. That is, simply having money available when you need it.  Matching the inflows from sales with the outflows to suppliers, employees and other costs. 

Over a year, a business might have an accounting profit – but during the year the bank account can run dry simply through lack of good cash flow management.

How does this happen?  It’s easier than you might think. 

Here’s one example: Your business makes a lot of sales and gets the money in (great so far!)  You pay some bills, buy some more stock… but don’t set aside anything for your sales tax (GST in Australia, TVA in Switzerland) or company tax.

The problem comes when the taxman shows up and there is no money in the bank. 

Expand your horizons beyond the next week and month and start to take in a time horizon of the next five years. This is exactly what businesses do when they look at cash flow for expanding their operations. 

Managing the timing of cash flow was one of the problems that my client Carl faced.  To help him address this, I developed a cash flow planner.

How a business mentor can improve cash flow

You can download your own copy (Google Sheet) by clicking here.

Of course, this is just one example. Every small business or start-up is different.  The advantage of having your business mentor to help you manage your cash flow is that you get a personalised diagnosis and prescription.

 

Implementation

OK great.  You know the problem, you know what to do to fix it.  But how do you implement?

As with most small business issues, doing something is the most critical step.  Let’s take the example above.  After completing the full cash flow budget forecast, we decided that we needed to do this:

  • Change payment terms from 30 days to 14 days with an upfront 50% deposit
  • Bring in a part-time assistant so that the owner could focus more on marketing
  • Reworked his pricing model to increase margins

Together we mapped out a plan for each of these steps and I held him accountable to that timeframe.  The result:  cash flow problems were solved, and the business was stronger and more robust.

 

Hiring a Business mentor

As you can see, a business mentor can improve cash flow.  Is it time for your business to have one?

If you want to know more about what a business mentor is and how they can work with you, you find a lot of information right here.  

I would love to hear your own story  -what cash flow challenges do you face in your small business?  Would you like to see if I can help you?  You can drop me a line here.