A guest article by Martin Blaha, Founder at OrganisedMinds.com, Managing Director 3P Consulting GmbH
I can only try to formulate an answer from my own experience as an entrepreneur.
#1 Cash flow / liquidity reserve of 6 months
For me, any planning of expenses and investments depends on the current cash flow. For me, the liquidity reserve plays the central role. As a rule of thumb, I would consider a liquidity reserve of at least 6 months to be essential. This means that if your company does not generate a single cent in turnover for 6 months, the company can still bridge (= pay) this period with its own resources.
Why 6 months?
This value certainly depends on the size of the company, the type of business and the length of time until I can generate turnover from a new order, new product, etc. product, etc. If necessary, it is also enough time to be able to significantly reduce costs or provide financing.
I am aware that this range is often not available, especially for starting small enterprises. On the other hand, this reserve must then be correspondingly larger for larger companies.
#2 Order situation: 3, 6, 12 months consideration
What does the sales pipeline look like - i.e. the status of ongoing and nascent business - when you look at it for the next 3, 6 and 12 months?
My rule of thumb is that the turnover for the next 3 months must be at least 80% certain, for the other 3 months at least 50%. In addition, I have an idea of what (= with which customers / channels) I want to realise which turnover.
Especially when you run a small business, you want to sleep in peace, which is why #1 and #2 play the most important role in my experience. I think every entrepreneur knows how stressful and difficult those times are when you can't sleep because of the gaping uncertainty of tomorrow / next week / next month.
#3 Focus on one thing
With the entrepreneur as the central authority, a small company has only very limited capacities. The multitude of issues one has to deal with because one is running a business firmly takes up some of the available resources: acquiring customers, preparing offers, drafting contracts, carrying out orders, managing employees and preparing their work, looking for suppliers, conducting negotiations ... then there is administration, accounting, taxes, cash flow planning and I don't know what else. Especially if you have a small company, the possibilities to delegate are manageable. Moreover, some tasks cannot be delegated at all.
Focus is therefore crucial. I personally have made the experience that you can basically only concentrate on one, max. two things at a time. If it's going to be something, everything else has to be put aside.
No matter what you are planning or whether you are already running a business, I wish you 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. In addition to this activity, he has created OrganisedMinds.com, a collaboration platform that enables companies to organise individual organisational units more efficiently.
Source: This post first appeared on Quora Germany. Quora Germany, "What are the three most important "rules of thumb" for small business success?"
Credits: Photo by Kyle Loftus on Unsplash
