So is a business case just about money or not? There are differing views:

“Business, that’s easily defined, it’s other people’s money.”  Peter Drucker

Disneyland is a work of love.  We didn’t go into Disneyland just with the idea of making money.”  Walt Disney

There is something of a paradox at work here.  If people are fulfilled in their jobs then they would say that they are not working just for the money. But equally, a business will go under unless it can turn a profit.

The bottom line is cash

Warren Buffett, Steve Jobs, and Alan Sugar are men who have made a lot of money. They all know the importance of being profitable. But, even after they made enough money to retire comfortably, they worked on; why? It is obvious that these men (who all know the importance of a good business case) have another drive. There is a greater vision and mission. These go beyond just cash flow and profit.

A business case has to look at the bottom line, the money. But in general, it is primarily a formal way of expressing the vision, values and mission of an organisation.  Developing a business case can seem like a daunting process at times. Particularly so, as there are so many different templates and examples available. But the core of the business case is very simple; it is just answering some basic questions, questions that are covered in ‘The Right Questions’ framework.

At some point for a business plan, you will have to prove the figures. This means examining the detail of profit and cash flow. But for now, we are just going to concentrate on the top-level questions. These are the strategic framing of the business; seeing where what we are passionate about intersects with an opportunity to create revenue.  In this way, we can help identify our vocation.

What makes you and your product or service different?

A business case is generally focused on the need to make money; if a business proposition doesn’t demonstrate the ability to make money it has to be adapted or discarded. But, the ability to make money is driven by the fact that something you do or make should be attractive enough to make someone buy that service or product.  You need to stand out, make yourself different from the competition, to give you that competitive advantage. This is your unique selling proposition (USP).

Working out what makes us different is not always obvious.  Not many of us launch a completely new idea or industry.  In fact, it is a fallacy that you need a completely new concept to be an entrepreneur or successful business person.  It may not be a completely new idea or product but you certainly need to do something different in order to stand out.

For example, you might offer better customer service or better value for money than the competition. Or you may pursue a particular under-exploited section of an existing market. If you are just starting up you need to make the offering attractive enough for people to buy your product or service, rather than those of the competition. You also need to overcome the buyer’s concern that purchasing from a new business might be risky. But, if you solve the customers’ problems sufficiently, they should need and want what you sell. That is the best incentive for getting people to buy anything.

Finding your USP

We find that it is primarily our character and abilities that make us stand out from other businesses.  Therefore to identify what makes us different we can start by looking at ourselves and look at where our values, our skills and a need in a market all intersect.  From this, we can see what makes us unique.

After that we can look at the broader marketing narrative and answer the sort of questions we find more commonly in a business case.  By going through this process we get a good overview of why the business exists, what it is going to do and indicate how it is going to make money.

Therefore as we continue to ask ‘The Right Questions’ you will find that you will naturally find the answers you need to build a business case. If you want to go through the process of writing a business case then read How to Write a Business Case:

“Happiness is a positive cash flow.” Fred Adler – Venture capitalist

I may not be a millionaire but in many senses, I am rich.  This is because for much of my life I have had the pleasure of not having to worry month by month about the balance in my current account.  When billions of people are worrying about whether they will have a decent meal today or if they will have a roof over their head tonight then it is good to be thankful for such mercies.

But I did not start out flush with cash and there have been times since where things have been a real struggle. At times every business pitch seems to fall flat, work is short and reserves are needed to keep afloat.  At such times I have become very keenly interested in profit, loss and cash flow and therefore they should be things we have a handle on before we hit a challenge.

The day to day challenge of cash flow

In a previous post, we looked at cost and resourcing in the context of a given task or project.  When thinking in project terms, the finances are focused on a finite amount that we are wanting to raise and control.  When thinking about a business there may well be projects that we want to achieve, but the day-to-day of the business is defined by profit and loss and – perhaps even more importantly – by cash flow. So I just want to highlight some crucial things to remember before we move on.

Cash flow is important as it determines the rate of return and affects liquidity. As Dragon’s Den star Peter Jones points out:

“There’s nothing more important than cash – cash flow issues are one of the biggest causes of company failures.”[1]

Liquidity is especially important to the SME (small and medium-sized enterprise). This is because you may well have invoices on the way but if they don’t arrive in time (to pay off your own debts) then your company can go under. Then it does not matter how profitable you are on paper. This is why all companies need a reserve of some sort, to manage these cash-flow challenges.

Cash flow and personal finance

The same goes for personal finances; after all a household is effectively a small-sized business.  You have certain a certain income and outgoings.  Each month you need to make sure more comes in than goes out.  If you achieve this then the amount left over is profit. This is the bit you get to choose how to use; to save or invest, could be considered profit.  If you spend more than you earn then quickly you will get into debt.  As debts compound it can become impossible to pay them off and then your household or business goes bust.  It is very simple.

As an individual, this could mean being declared bankrupt or as an organisation going into administration or liquidation. Either way, it will be a huge hurdle in you fulfilling what you set out to achieve. So, it is best to reduce the risk of this happening. Do this by planning as carefully as possible and keeping on top of your accounts.

Keeping your accounts and balancing the books

At the most simple level, you may just need a ledger or spreadsheet with three columns: one for money in, one for money out, and one to work out what’s leftover. This gives you a snapshot of your finances at any one time. If you then produce a table predicting this information over a period of weeks or months, then you have the making of a cash flow forecast.

The issues of profit, loss and cash flow are perhaps most important when starting out in a new business.  It can often take several years for a company to really become profitable and for finances to stabilise.  It is therefore those first few years where the business is most vulnerable.

The Business Case and forecasting

Part of the business case and business plan at the beginning will be forecasting the finances over this critical time.  If you want to attract finance or get a business loan then any investor will want to examine these figures.  It is part of their risk management; they want to get their money back, with interest.  You need to be profitable for them to be profitable.

It can be tempting to be overly optimistic about your finances in the beginning stages of a business.  Therefore I recommend you produce several models for your cash flow: a best case, most likely case and worst-case scenario. Work out the most stripped-down version of what you need to operate and the investment required, as well as your preferred initial equity.

Final thoughts

I am not going to go into more detail on book-keeping here as it is outside the remit of this post. There are plenty of good resources on accounting that you can look at. Software packages such as Microsoft Excel and Apple’s Numbers provide spreadsheet templates. These can be used for household and business budgets as well as cash flow forecasts. I have also suggested some useful links below where you can get more information.

The most important thing is to have a method that works for you where you can track you’re finances. And remember, cashflow is at least as important as profit, especially if you are a small enterprise!

Useful links:

http://www.businesslink.gov.uk

http://www.hmrc.gov.uk