Rolling Capital

Recently my friend started a business of selling hardware to government offices. I know he is good in sales, he has a proven track record while we were working together at a local company.

However, being good in sales does not mean being a good entrepreneur. A few months after he started his business he ran into the problem of not enough rolling capital to buy from supplier.

You see, this is how he does business; he takes "Request For Quotation" from clients, then source for the products from a pool of suppliers. He earmarked the cheapest suppliers and mark up the price for some percentages, and pass the "Quotation" back to the clients. The clients then gives him a "Purchase Order" where he will then contact the earmarked suppliers to purchase said item. He will then pay for and receive the product, deliver it to his client, and receive payment, and voila! a sale.

The problem my friend is having now is that although he received a "Purchase Order", he does not have sufficient cash or credit to buy the product from supplier. If he wait too long the client will get frustrated and cancel the purchase, which had happened several times. This problem is causing him many sleepless nights currently.

So, if you are just starting up a shop, make sure that you have sufficient rolling capital to run your business. Instead of spending it all on rent, furniture, and buying office equipment, keep at least enough money for you to run your business at least for half a year.

Life is a Gamble. So is Business

Life is a gamble of Win and Lose. How's that you ask? Well you live (Win) or you die (Lose). You ate something good for lunch (Win) or you ate crap for lunch (Die). Et Cetera.

Well, business too is a sort of gamble. You can either succeed spectacularly (Win) or fail miserably (Lose). The thing is, nobody can predict whether a business can fail or succeed. However, there are some things that a person can do to increase the chances of succeeding (or prolong the inevitable heh heh).

Things to do to increase chance of success:
1) Research
Before starting a business, you need to do your SWOT analysis. You also need to know what you are selling, and actually sell what you intend to sell. That means you know what your market is, and what your market wants.

2) Prepare Team
When you start a business, never ever start it alone. You will not have the manpower to do anything on time. However if you start your business with a lot of people, things will get messy and ugly very, very fast. So pick a small group, something like 3-5 for a start up business.

3) Monitor Execution/Communication
Communication is key to success. If your team does not communicate well, you know the rest. Making sure that the team does communicate is important and must be done early.

There are more things that a person can do to ensure their business will succeed. It is not limited to what I have just presented. Indeed, different people will have different ideas of what is important to their business.

Starting A Business : Bootstrap Start-Up

I started my IT consulting business 2 years ago. November 1st, 2007 to be exact. At that time I had very little savings so this business is basically a bootstrap start-up enterprise. This is ok because since I am providing a service and don't have to produce products on a daily basis, I don't need that much. This is perfect for me since I can work out of my home, I don't have to rent an office, pay for office utilities, and spend money to travel to and from the office. The living room became my office, the coffee table became my desk, and the sofa and chair became my cupboard and drawer.

Basically, the only business spending that I did was the land line (RM32) and internet connections (RM88). I also invested (RM3,000) into an aquaculture business. So for the first fiscal year my expenditure was (RM4,440). Now during that first year, I did 5 projects that generated (RM3,000) each and 4 projects that generated (RM4,000) each. Totaling all of them up gives me a first fiscal year revenue of (RM31,000).

All this means that at the end of the first fiscal year on 31 October 2008, I made a profit of (RM26,560). It may seem a lot, but break it down to monthly and I am only getting (RM2,213) per month. After paying for groceries, cable tv, petrol/fuel/gas, utilities, etc. all I am left is (RM200) to spend for fun.

For the second year starting in 1 November 2008, I setup a couple of website which cost (RM800). I also invested another (RM3,000) into the aquaculture business I started the year earlier. so my total expenditure was the same at (RM5,240). This year, I did 4 projects that generated (RM3,500) each and 6 projects that generated (RM4,000) each. This gives me a second year fiscal revenue of (RM38,000).

With second year ending 31 October 2009 profit of (RM32,760) which broken down monthly into (RM2,730), things seems to be getting a little bit better. I have accumulated (RM4,000) in savings around this time, but due to unforeseen circumstances I spent it all, and still owe my credit card (RM5,000) on top of it.

Third year... well, we will see. So there you have it. It's not glamorous, it isn't fun, it is a lot of work, but it is a damn dirt cheap of running a business. One thing though, this model of doing business does not apply to all types of business. I made the mistake of trying to apply this method to my aquaculture business. It was a disaster. Check out "Starting A Business : Providing Goods vs Providing Services" for a post mortem of both my start up business.