Guest article: The three most important “rules of thumb” for the success of small businesses?

A guest article by Martin Blaha, founder of OrganisedMinds.com, Managing Director of 3P Consulting GmbH

I can only try to formulate an answer from my own experience as an entrepreneur.

#1 Cash flow / a liquidity reserve of 6 months

For me, all planning of expenditure and investment depends on the ongoing cash flow. The liquidity reserve plays the central role here as far as I am concerned. As a rule of thumb I would regard a liquidity reserve of at least 6 months as essential. That means that if your company does not bring in a single cent of revenue for 6 months, the company can nevertheless bridge (= pay for) that period under its own steam.

Why 6 months?

This figure certainly depends on the size of the company, the type of business and how long it takes before I can generate revenue from a new order, a new product and so on. If necessary, it is also enough time to cut costs significantly or to arrange financing.

I am aware that small companies just starting out often do not have this kind of runway. On the other hand, in larger companies this reserve then has to be correspondingly larger.

#2 Order situation: a 3, 6 and 12 month view

What does the sales pipeline look like – that is, the status of current and emerging business – when you look at it for the coming 3, 6 and 12 months?

My rule of thumb here is that the revenue for the next 3 months must be at least 80% secured, and for the following 3 months at least 50%. Beyond that, I have an idea of what (= which customers / channels) I want to generate which revenue with.

Especially when you run a small business, you want to sleep soundly, which is why in my experience #1 and #2 play the most important role. I think every entrepreneur knows how stressful and difficult the times are when you cannot sleep out of sheer worry about tomorrow / next week / next month because of the yawning uncertainty.

#3 Focus on one thing

With the entrepreneur as the central authority, a small company has only very limited capacity. The multitude of matters you have to deal with because you run a company takes up quite a bit of the available resources: acquiring customers, drawing up quotes, drafting contracts, carrying out orders, managing employees and preparing their work, finding suppliers, conducting negotiations … and then there is the administration, accounting, tax, cash flow planning and goodness knows what else. Particularly when you have a small business, the opportunities to delegate are limited. On top of that, some tasks cannot be delegated at all.

That is why focus is decisive. My personal experience is that you can basically only concentrate on one, at most two things at a time. If it is going to come to something, everything else has to be put aside.

Whatever you are planning, and whether or not you already run a company, I wish you every success from the bottom of my heart!

About Martin Blaha

Martin Blaha is Managing Director of 3P Consulting GmbH and helps companies in the areas of project management, product development and product management. Alongside this work he has created OrganisedMinds.com, a collaboration platform that enables companies to organise individual organisational units more efficiently.

Source: This article first appeared on Quora Germany. Quora Germany, “What are the three most important “rules of thumb” for the success of small businesses?”

Credits: Photo by Kyle Loftus on Unsplash