Undercapitalizing the Business

Being Undercapitalizing the Business

Maybe you should've waited to order that red Ferrari after all...

When we review business plans for start-ups, cash is often estimated to flow in 3 months or even less. The reality is often somewhat different; we often find that real cash flow doesn’t start until 6, or even 9 months after starting the business. Obviously for retail businesses this would not apply, but if services and goods are being applied, then our standard rule of thumb is to double the period that the new owner is predicting for the commencement of regular cash flow. 

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If new entrepreneurs grossly underestimate the amount of time and capital necessary to reach cash flow breakeven, it causes many promising ventures to shut down prematurely. Be conservative with your financial projections and plan on having adequate funds when you launch to cover all sunk costs (including startup losses) until your company becomes cash flow positive.

It means that apart from the business costs, you also need to cover your personal expenditures such as mortgages, loans, every day living expenses and so on.

If you don't have enough savings to cover the required investment, it may be tempting to launch your startup under the assumption that you will be able to obtain additional funding at a later date. While staging investment has advantages (preserving the option to abandon, higher valuation and—therefore—less dilution, etc.), this strategy can backfire and leave you unable to get cash when you need it most or force you to negotiate with banks and investors from a position of weakness. It's often better to change the business model to bring required investment in line with available resources.

The moral is clear, unless you have a very generous benefactor to bankroll you through the cash flow weakness in start-up it is probably best to avoid extravagant expenditure on vanities – so hold off ordering the red Ferrari company car.

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Goal Setting for Dummies – Part Two

Goal Setting for Dummies – Part II

Review your values and goals and answer one simple question.

“Are you willing to do whatever it takes to succeed?”

If you answer “Yes I am”, then you are ready to take the next steps.

Look at each of your goals and one by one (take your time) write down what steps you can take to begin to move towards these goals.  They don’t have to be big things – any step in the right direction is a positive move. 

If you like take one goal at a time, it may well be that you have priorities. Please don’t think you will get there overnight, it is important you don’t become dispirited, if you take small steps you have to succeed, its impossible that you won’t.

(Jack Canfield (if you don’t know who he is, look him up!) says that if you do just 5 things every single day that take you closer to your goals you cannot help but hit them!)

Each day again write down what you have achieved on your pathway to success.

At the end of a week review your progress and celebrate, in whatever way you like with how you have succeeded during that week. NEVER, NEVER QUIT.

Always bear in mind that winners never quit and quitters never win. Remember Thomas Edison who failed 1000 times before he achieved his successful light bulb.

If you feel you need any further help in goal setting and achieving your goals, please do not hesitate to contact us at Transformance International – contact

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Benefit From a Fraction of Your Employees

You only benefit from a fraction of your employees’ potential value.

Your greatest, most expensive and ironically, most under-utilized resource are your employees. This is why Transformance is passionate about realizing the value of human capital in organizations. Employee costs may be as high as 60% of your expenditure as a business; doesn’t it make sense to obtain value from that investment? Unfortunately, many businesses only receive a small fraction of benefit. In many companies, only a handful of key leaders, managers and influencers are given a voice. The rest of their workforce has a limited opportunity to make a difference. 

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Employee underutilization usually increases the closer you are to the frontlines of a company. Frontline employees are often perceived to be less important than middle managers. However, they usually have the most value to offer. Their close proximity to the day- to-day action of your business gives them an ideal position to identify your company’s strengths, weaknesses, opportunities and threats.

 The classic example of an underutilized employee is the cleaner. They may be considered the “lowest man on the totem pole,” however they often have the best opportunity to identify waste and inefficiency. They walk the line, cleaning, sweeping and observing. They witness delays when a part is not connected properly upstream. They see the fatigue and frustration on workers’ faces as the day progresses. They remove hundreds of pounds of unnecessary waste and damaged product that could have been saved or reworked. I once went into a Mercedes showroom which was immaculate and ended up having to use the washroom – it was literally filthy and completely at odds with the Mercedes brand and philosophy. Just because it was out of sight, it doesn’t mean that it should be out of mind. An engaged cleaner would have resolved this.

So imagine the improvement in overall quality, job-satisfaction and cost-saving if you knew what “your cleaner” knows. Now, multiply the value of all the unreported, ideas, knowledge and insights of every employee in your company. The untapped value is enormous.

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When you don’t involve and leverage employees contribution the following happens:

·         Employees often do not feel connected to their company’s strategies.

·         Employees do not know what is expected of them.

·         Employees do not know how their performance will be evaluated.

·         Employees feel isolated from the decision making process.

·         Employees feel supervisors can arbitrarily prevent or slow their promotion.

Your objective should be to replace an “us versus them” culture with a culture that creates generations of leaders. When possible, you should adopt a policy of hiring new employees at the bottom and promoting existing employees to the top. You should replace subjective annual reviews with ongoing mentorship that assesses an employee’s performance in a completely fair, open and democratic way.

At Transformance we love the concepts of coaching and mentoring, and all successful companies have these two great pillars in place.

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