What resources do you need to fulfil your dream? How much money, muscle and materiel, is necessary to achieve your goal?

We often limit ourselves and our goals to our present resources.  After all, it is reasonable to ask, ‘What can I afford?’ before committing to something, even if that is just a vacation.  Budgeting is good stewardship, and I would certainly not recommend getting into debt on a whim.

But, we won’t be able to dream big if we limit our goals to what we can achieve with the resources we have now.  It is better to ask first, ‘What are we most passionate about doing?’ Then we work out the resources required and can think creatively of ways to get what we need.  That is why this question comes some way down the planning process.

“First, have a definite, clear practical ideal; a goal, an objective.

Second, have the necessary means to achieve your ends; wisdom, money, materials, and methods.

Third, adjust all your means to that end.” – Aristotle

Resources: The importance of logistics

An army needs logistics. A large portion of every military is concerned with delivering the right resources to the right people in the right places.  In fact, there are many more logisticians than infantry soldiers in the average army.

“Amateurs talk tactics, professionals talk logistics” – General Omar Bradley

But the army does not exist for logistics. It has a mission to achieve. That aim is very rarely just to do with just moving men and equipment from one place to another.  Logistics is a large and essential part of achieving your aim. But it is there to support the mission, not to drive it.

History testifies to the fact that an army will beg, borrow and steal if necessary to get the job done if (or rather when) logistics fail.  You can still achieve your aim when resources are difficult to come by if you remain focussed; as the United States Marine Corps would say: you need to ‘improvise, adapt and overcome!’

Resources are not as finite as you might think

There are very few occasions when finances and resources are truly fixed.  That is why the vision or goal is so important. They give us the correct motivation. A compelling dream will inspire us to innovate and overcome shortages. The idea of success motivates us to find the money, people and tools to get the job done.

Why is it that many people who win the lottery often struggle? Why do they end up having spent their money within a few years?  The gambling industry sells winning as the dream; it does not provide a vision for what comes beyond that.  Many people who win do not have a clear idea of what they want to do with the money. They might take a nice holiday and pay off the mortgage but that is not a grand vision.

People who make (and maintain) large amounts of money tend to use it productively. Resources that continue to grow are usually driven by a vision beyond that of just making cash.  Bill Gates, the richest man in the world for many years, was not motivated primarily by money.  When he started Microsoft with Paul Allen they had a vision of a computer in every home. This dream, of how computing could transform the world, drove Microsoft. It became the most successful software business in the world and made Bill Gates a multi-billionaire. This money is now being used to drive a new vision. Through their foundation, Bill and Melinda Gates are on a mission “to create a world where every person has the opportunity to live a healthy, productive life.”

Money, Muscle and Materiel

So, we start with the dream and then work out what we need to make it a reality.  When we need to make something happen it generally comes down to the three ‘M’s:

• Money
• Muscle
• Materiel

Finance, human resources, and equipment are all important, but it is usually the first element, the money, which drives others. Therefore, we will focus on cash now and return to people in more detail when we consider the ‘Who?’ question.

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Estimating the cost: Using the Route Card Tool

Once we have articulated our dream or goal, we can start to estimate the resources we need.  If it is hard to assess the cost for a whole goal we can break it down, as we have done previously, and cost each constituent task or step.

To do this you can use the Route Card Tool. Just follow these steps:

1. Take your completed Route Card Tool, choose a goal and then estimate the resources needed for each task or step included in that row.
2. Now add these up to create a total resource bill for that goal.
3. Repeat steps 1 and 2 for your other goals.
4. Add up the total costs of each goal to calculate your overall resource needs.

This should give you a reasonable estimate of what you need to succeed.

Counting the opportunity cost

Remember to put a cost against the time you invest in achieving the goal.  When doing something yourself you can feel you are getting it done for free but that is not true.  Our time is worth something, even if it is just the opportunity cost of not being able to do something else while we are engaged with a task we have decided upon.

Often it will turn out cheaper to pay someone else to do a task that can be delegated. This leaves you with just the things that no one else can do, meaning you will achieve your goal sooner.

We will look at delegation some more under the ‘Who?’ question, but now – having broken down tasks with costs against them – we are in a much better place to decide on the team of people you might need to support you.

Alternative funding

Once the cost for each task is estimated you will get an idea of the budget for the whole project.  Now you can start to think creatively about how to raise funds or reduce costs.

For example, instead of paying for a qualified professional, could you get someone to do the work voluntarily? Perhaps you could offer them experience as an intern? If someone is still in training or education they may value the experience more than pay.

Alternatively, think about what service or product you could offer someone in return. Bartering is as old as trade itself but sometimes people forget it. I have used this sort of transaction in building my business. For example, I have coached people in return for help with developing my website.

Fuel the dream

Considering the resources we need and how we are going to get them is an important aspect of how we make our dreams real.  An idea is more tangible as we think about the money, muscle and material we need for the job. It can take some time (and may not be as liberating as big-picture thinking) but it will help you succeed, so stick with it!

And remember:

• Your calculation is just an estimate. The overall cost will change and is likely be higher than expected. It is worthwhile adding an extra 10% to the overall estimate to take this into account.
• You don’t need all the resources right now. Focus on what you need for that first step or goal.

“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