16 things keeping SME owners awake - 10. I’m worried about my financial resources.

Financial instability is corrosive to the soul. That nagging feeling that it could all come tumbling down if X happens, or Y doesn’t happen. The only way to completely eliminate this existential dread is to have so much money that nothing matters. That’s not the case for most SME owners, so here’s a few things you might consider to ease the tension.

Make careful husbandry of your resources a primary focus. Watch all spending and be brutal with yourself about whether it is mission critical or not. Keep a close eye on cash flow because the timing of money in v money out is what can break any business.

Sometimes the best thing you can do is to take a financial partner, either as a passive investor or as a fully participating member of the management team. If that sounds like hell on earth, explore other lines of credit that you can draw on as and when required. Your bank is likely to provide overdraft facilities to even cash flow or if you are facing a specific issue that will resolve over time, a term loan may be the best option. Either way, regular and informative communication with your funding source is always a good idea.

Growth isn’t always the answer to financial stability and in fact is generally resource hungry long before any results are seen. But, looking at your finite financial resources and what you bare using them for currently may show opportunity to make change and improvement without additional expenditure. Bootstrapping means different things in different fields, but for most SMEs it could look like this. You are deeply involved in a product or market segment that is static or in decline. Knowing when to switch emphasis from the old to the new carries risk and requires deep consideration, but utilising the expertise and money you have tied up in one thing may produce much higher returns in another area.

Wherever you can, collaborate. SMEs are often in a position of having to use precious resources on things that are not core activity. Think broadly and laterally about where you could team up with other similar businesses (preferably not direct competitors) and share the cost of things like sales and marketing and administration.

I strongly urge you to take a step back and look at what your core competencies are and focus your attention on refining and streamlining your operation in those things. Everything else, look for opportunities to either collaborate with others as suggested above, or consider outsourcing altogether. That will help to convert fixed cost (OPEX) to variable cost so you can start paying for what you need when you need it rather than carrying costs that are not always justified.

This might seem a bit self-evident, but think about revenue generation as your number one focus. We’ve talked about many other things such as cost control, but the backbone of any business is its ability to generate revenue. Look at how you operate now and objectively assess your efficiency at getting the best bang for buck in the market. How can you sell more to existing customers? How can you start selling to customers you don’t have now? What else could you start selling that would be a logical fit for your existing customers? Think about sales in isolation and once you’ve worked out a strategy that is purely about increasing revenue, backfill into the plan how that will look for a resource perspective.

Your closest financial partners are your suppliers. I know we don’t generally think about them in that way as we do with banks, they really are your first line of credit. I’ve said it before, but it bears repeating. Get close to your suppliers and if necessary, negotiate better terms of trade, including trading at more debtor days than you currently are, or agree preferential terms for prompt payment and loyalty rebates.

Let’s take a look at your team. The strength of a business is not how many people you are paying. The strength is in having exactly the right number of people who are smart, focused, motivated, multi-skilled and productive. Often SMEs have two people doing the work that should be achievable by one. Think about it. Paying one quality person 30% more is still a better deal than paying two smaller salaries and not getting the return.

Training for training’s sake can be pointless and expensive. However, if you put some real thought into targeted training to grow the skills and capabilities of your people, there are two probable outcomes. They will be more productive and versatile and even better, they will be more inclined to stay with you because they know they are appreciated and valued.

Quite simply, look for ways to sell more. This sounds simplistic but sometimes the answer can be hiding in plain sight. Any strategy to increase financial stability that doesn’t have growing sales as a major component is a flawed strategy. The answer might be that you can’t, but don’t assume this.

Markets are like kaleidoscopes. They are always moving and shifting in their patterns and you need to keep up. Read, watch, listen, engage with industry forums and as ghastly as it may seem, do “networking”. It is one of my least favourite things to do, but it’s undeniably useful to stay on top of what’s coming down the pipe.

As ever, you have a responsibility to remain the fearless leader. That doesn’t mean you should lie to people. It just means that the captain of the ship needs to keep their head despite what anyone else is doing. It your team or suppliers or competitors sense fear in you, things can fall apart fast. Know who your true friends are and talk to them openly and frankly but have a game face when you’re on the paddock for everyone’s sake.

If at any stage you would like to reach out and talk in more detail about any or all these issues, or even ones that aren’t mentioned, please call me on +64 275 665 682, email me at john.luxton@regenerationhq.co.nz or book a time to talk, either face to face or by Zoom. Any call will be free, confidential and with no obligation to do anything else.