Many people get into business with a plan of what they want to do and how they are going to do it. The biggest thing that holds them back is money.
Through out our business lives and personal lives, cash-flow is always the biggest concern we have. In business without cash-flow we are short lived. I want to address today four of the biggest threats to our cash-flow. I call them the Four F’s of funding a business. Remember with all of these you will need the help of your professional team to make sure you cover your basis correctly. So talk to you your attorney, banker, accountant, insurance agent and financial advisors before you do anything. This is not advice, just things to consider.
The first F is what all want to achieve but fail to fund—FLOURISH. In more instances than one would believe it is the rapid growth of a business that kills it. The business is successful beyond what one expected but did not plan for rapid expansion; they have no how-to guides to train new team members; they have no plan or budget for how to compensate team members, they are forced to react. Too often they enter into a business as an experiment, they are going to try it out, because they don’t know if it will succeed. When it does they are totally unprepared and find themselves facing their worst fear, failure. When one enters into business one needs to plan to flourish.
The Second F is FINANCIAL DIFFICULTY. This is the equivalent of your business becoming disabled. Maybe the business owner has health or personal problems and cannot continue to pull all the weight. Maybe the business loses a key employee, or maybe the facilities suffer a fire, flood or other catastrophic loss and the business can not operate. How do we deal with these situations? Business owners need to prepare for catastrophe. You must have your plan B’s in place. Plan B’s need funding and you must plan to fund plan B.
The Third F is FINISHED. In this situation the business owner is ready to leave the business, she wants out. It could have to do with the product or service becoming obsolete, the age or the health of the owner or a partner or the business could just fail. A good real estate investor will tell you that you have to know how you are going to dispose of a property before you buy it. A business should be the same way; you have to know your exit strategy. A business could be sold in its entirety or just the assets in the case of a bankruptcy or other failure. A poor exit could do great damage to the cash-flow of your family that you so diligently provided through the business.
The Final F is FINAL. This is where the owner or a partner dies and thus the business must end. This of course can be the most financially devastating to the most number of people. Unless proper plans are prepared and funded, the death of one partner could financially ruin all the partners’ families. Most partnerships, corporations and LLC’s establish buy/sell agreements or address the situation in their by-laws, oftentimes however they fail to plan the funding of these plans. We must take care to protect our families and the families of those involved in the business.
So as has been seen there are essentially four outcomes That need to be funded in business,-Flourishing, Financial Difficulty, Failure and Final. Failing to fund any of these could be devastating to your business, your family or both. The plan for flourishing needs to be kept up on the most. The others can be taken care of with a relatively small investment and some wise counsel from your professional team. Don’t be afraid to plan, be afraid of failing to plan, because this will lead to failure.