Business Clinic

In his wide-ranging career, Mike has gone through all the highs and lows of running a business.

As chairman of Business Link East Lancashire, he is keenly involved in supporting local enterprise. If your business has a question that needs answering, write to Mike Murray, c/o Business East Lancashire, Newspaper House, High Street, Blackburn BB1 1HT.

Question: Many new businesses seem to get into trouble in their second or third year. Is there a reason for this and can I avoid it happening to me?

It's necessary to split this answer into three distinct, yet related areas:

a) Get real and stop being so polite -- Being in business is a culture shock for many. Some don't even notice they are going to have to change until it is too late.

In life, we are guided along by the system.

Parents tell us what to do and how to act, then teachers come into play and, of course, we all live in a world bounded by rules and regulations enforced by the law or religion and morality.

This necessary orderliness can lead us to believe that people in authority are to be believed and must be right because they are a banker or a solicitor or an accountant or other specialist or person of 'importance'.

Being too nice is fine in life, but must change in business.

You must question everything. Ask yourself what the other person has to gain or lose.

Do not be afraid to ask them to explain, or to drop their price or to even do it for you! Get advice from more experienced people.

Don't be too NICE. You've got to hustle!

Even customers prefer realistic straight-talkers who understand the jungle. That does not mean you have to abandon your integrity.

b) Take every pound prisoner -- take money seriously -- Capital, the money you first use to start your business, is like a seed.

The whole purpose of being in business is to grow capital! By making profits , we add to our capital and, whatever else you do, you must make profit.

Even if you put £10,000 in the bank, you will earn interest. You must at least beat

that by investing it in a business! The difficulty here, is knowing whether you are profitable and indeed how profitable.

In the first year, it is usually possible to guess you are in profit simply by keeping

transactions in your head or monitoring how much you have in the bank.

By year two or three, your business has become more complicated and others are now involved.

Measuring profit and co-ordinating an efficient operation requires systems.

You don't guess how fast your car is going - you use a system, an instrument to measure it called a Speedo.

So why would you guess you are making profit or that John is doing his job well?

Get a computer and some basic systems, so you know for sure! Alternatively, trade for cash only, carry no stock and use your bank account as the P&L. c) Timing -- Cash is King (turnover is vanity, profit is sanity) -- Many new businesses don't realise that the more successful they are at selling and distributing their product, the more cash they have tied up.

If someone buys from you, say £2,000 worth of goods, they will probably expect 30 days credit (which in fact usually ends up at 60 or even 90 days).

You've lent them, interest free, £2,000 for 30 or 60 days.

Worse, if happy, they buy £4,000 next time. So the more successful you are, the more cash you have tied up.

Sure, you too may have received credit from your supplier, but matching the amounts and timing issues are surprisingly difficult to manage.

They may not pay you at all! You may have to pay workers immediately, whilst you yourself wait to be paid.

You probably will have to carry stock to ensure that you can meet their delivery dates!

All this gets more complicated as you grow and so needs managing.

Capital needs to be preserved and grown to fund this cash-flow merry-go-round.

Issues like this are faced by millions of businessmen every day so you should not be put off.

Simply seek advice from Business Link and others, then enlist someone to help with profit and cash management - it's worth it!

Don't rely on your accountant. Whilst he will be essential to guide you initially, he cannot run your business for you. Get him to start you off, but insist on filling in the numbers yourself.

Partnerships with

complementary skills also work well in managing such issues. The worst mistake of all is to think of administration and book-keeping as a part-time nuisance factor. If you don't believe me, why is accountancy one of the highest-paid professions!