When you are starting a company, there are five essential things you should understand about being in business. Shuriken CEO Andrew Jeffers highlights these five things in the form of Q&A:
1. How much cash do you have in the bank?
I’m going to ask you a question: Do you know how much money is in your bank account, this very second?
I ask this question to everybody. About 90% of the room always say “yes”.
I go on and ask them to write it down, go online, have a look and see if it’s the same. Because we all forget.
Sometimes people pay us money. Great! Sometimes we’ve got expenses coming out that we forget about.
If you need to know your business, you need to know how much cash is in the bank. You need to do that every day.
2. What’s coming through the door? How much is actually coming in?
If you’ve got a cash business, it’s simple. You know what’s happening every day.
Let’s talk about the grocer… The grocer goes to the market in the morning, spends a thousand bucks. By the end of the day, he makes all these sales and has a $2,000 left over.
He knows, potentially, what’s coming in.
With accrual accounting, you need to know how many bills are out there and when people are paying you. Having a handle on your data and knowing when the money coming in is the second secret sauce of having a successful business.
3. What’s going out of your business?
Likewise, knowing your bank balance and knowing what money is coming in, I know you’re having a laugh now, but, yes, is money going out.
Work out what needs to go out.
Some people get phone calls and they say, “Oh, that’s right, I’ve got to pay that fella.” But if you work in that situation, you’re never going to know how much money is coming out. Because the money coming in is going to get sucked by the money going out.
You need to know what has to go out and when. It needs to be planned. It’s all part or being in business and staying in business.
4: The James Brown – the money maker
What is it that you do, on a daily basis, to make money? It doesn’t matter what business you’re talking about.
It’s your money maker.
Accountants have to do tax returns. Financial planners have clients. Insurance people have policies. The guy who runs a restaurant has tables.
I’ve got a client who runs a restaurant. And I ask him, “What’s your money maker?” He said, “Well, I sell food and I sell drinks?” I said, “No.”
You need to work out how many people at how much price, where are you going to make money? That’s called your “break-even”.
Every single day you say, “I need to have fifty tables at fifty dollars.” If I get fifty tables at fifty dollars, I’ve made money. His money maker, I’m assuming, is looking after his wages, his food cost, beverages and all that. He has to hit fifty tables every day.
Identifying your money maker is the key task and that’s what being in business is all about.
5. Measuring Results
Like with that restaurateur, we have to identify a measure every day. We have to measure the money maker – how many tables have we had?
I used to work at Pizza Hut when I was 15. Every day we used to have to get a pager. Anybody remember those pagers?
We used to have to get those pagers and we had to phone through to the area manager how many actual pizzas we sold, how many people walked through the door, how many covers we sold and we actually report the sales.
But, at the end of the day, if I know that I need fifty people at an average of fifty dollars, I’ve done my break even.
That’s my money maker and I’m measuring it.
I tell you, if you look at those five things:
1. How much cash I’ve got,
2. What’s coming in,
3. What’s going out,
4. What’s my money maker and
5. Am I measuring it?
…you will be successful and you’ll be in business for a very long time.