Make a plan 101

Posted on 26/08/2010

2


Over 6 years ago now I was sitting in my office at work with the Sydney Harbour Bridge as the view from my window. The view was beautiful and I took it all for granted! We drank expensive wine with the boss on Friday afternoons accompanied with those delightful snacks. Needless to say life was bloody sensational! Back in those days I didn’t fully understand the concept of ‘capital appreciation’ or ‘getting your hands dirty’ or ‘this project is just a means to an end’. In fact I was solely focused on career progression and dreamt of saving ‘some’ money to go into business ‘at some point’ in my life. You see I had all these excuses. In my head the idea of going into business revolved predominantly around working in and around an air-conditioned office with the modern cons to suit; pretty much like the office I was now accustomed to. That was then. A year later I was back home in Harare working and gaining more life and work experience as you do. It was then that I fully realised and appreciated the concept of ‘capital appreciation’, ‘getting your hands dirty’, ‘this project is just a means to an end’ and what it actually meant ‘to go into business’ in the real Zimbabwe. I recall M. Snr making a poignant statement at that time: ‘remember son if a business can survive throughout this challenging business environment (picture 2004/2005), then surely that same business can survive in prosperous times.’ Standing where I am today, I totally agree with that statement.

Business case

Quite often when people make the decision to embark on this journey (ie setting up a business in search of fortune and fame presumably), they can either borrow/steal the funds, inject personal savings while others pursue this journey ‘the road less travelled’. What is the road less travelled you ask?

Well let’s use Thandi in this example. Thandi studied to be hairdresser at the local technical college and has been working in the industry for the last two and half years. She is now becoming frustrated with the lack of progress in her job. The business owner is reluctant to invest in new machines and the much-needed refurbishment exercise for the hair salon. Instead the owner content with current revenue is using the profits to invest elsewhere. Thandi’s client base continues to grow steadily and she is now considering whether she can pursue this business venture on her own. This is obviously a massive step for her personally. The enormous challenge as with most start-ups is of course the capital required. In her working career so far, Thandi has managed to save $5K but she is acutely aware that she really needs to invest $10K for the project to have any real chance of success. Luckily for her she has a good friend; let’s call this chap Nigel for now. Nigel has a friend in his network looking to overload a business. The business is a butcher owned by a certain gentleman. Teendo has a butcher that he owns and operates in Norton. To make our case study more interesting, Teendo has decided that he will pursue other business interests while he leases out his butchery to Thandi (this example – everybody wins). Nigel connects the two and voila! – Thandi is now in business.

Ah but I hear you murmur something. Of course you, Thandi and I know that she’s in the wrong business but that’s point here – she needs to raise an extra $5K remember? Here, she’s gone into a business with a minimal amount of investment – leasing an existing business with an established customer base. Teendo only wants one month’s deposit and one month paid in advance. Thandi gives him $1K in total leaving her with $4K. Upon taking over, Thandi invests heavily in more stock leaving her with a balance of $3K in her savings account. Her monthly profit averages $500 and she calculates that she needs to lease this business for 14 months minimum to save the $10K required. She runs the business for two and half years during which she manages to purchase the business from Teendo for $3.5K after 6 months of leasing it. My rough calculations indicate that she now has an asset worth $3.5K and a good relationship with her bank and various suppliers. These relationships will prove to be very useful for her hair salon later on. After two and half years, she’s manages to save $8.5K in cash and eventually sells the business for $7.5K. In total she now has 16K in cash. After a two and half-year stint in the ‘wilderness’ she is now ready to commence work on the hair salon business.

Moral of the Story

The above is a completely made up scenario with fictional individuals (except for this Nigel character I suppose) but I am attempting to highlight the challenges and opportunities of going into business in general.

A few points to consider (not an exhaustive list): –

  • There is a need to think ‘outside the box’ in order to achieve one’s ultimate goal – only you know what your objectives are – press on with your plans and don’t be afraid (ever).
  • Be pragmatic and gather proper facts about the business and your idea. Will the idea survive in the real world? Many businesses collapse in the first 2 years mainly due to cash flow constraints.
  • Be cognisant of the intangible benefits of the journey – the relationship with the banks and suppliers is invaluable – this will prove to be beneficial in future. A good relationship with the bank can only be profitable for the next business.
  • The business and life lessons gained from this whole experience i.e. Thandi moving to Norton to run a completely unknown business – a good moral and confidence booster.
  • Gaining the trust and respect of the existing staff members of the butcher – your staff are your most valuable asset. Winning them over especially when taking over an existing business is critical to the overall success. In time Thandi could select key staff members from this group to recruit for her new business.
  • The foresight Thandi had to understand that ultimately she needed $10K to achieve her dream and she wasn’t afraid to take a different route to achieve this ultimate goal.

Add this anywhere

Share

Advertisements