Category: Finance

Credit Crunch – advice for Startups

Posted on by Steve Sammartino

So the credit crunch is here. This is great news for startups. Great news because the pretenders leave the playing field and reduces the number of players in the game. They often provide flimsy excuses to themselves and us saying things like ‘It’s not a good time to spread new ideas…’

So we need to think about this:

How to win?

  • How do we win when a lot of money is being locked away from SME’s?
  • How do we win by investing our available funds frugally?
  • How do we win by extracting the maximum value from suppliers in a contractionary market place?

In short, how do we extract more value as a ‘bootstrapping startup’ while the VC funded few fall over… scamble for more cash – and run around trying to ‘monetize’ quickly. How can we turn the fact we know how to operate on a tight budget into our advantage?

Now is the best time yet for boostrappers. Now is the time when real value investors, real value extractors and real value providers win.

Cash flow vs Profit

Posted on by Steve Sammartino

Cashflow positive means: More ‘actual’ cash money is coming in than is going out. It does not mean revenue exceeds expenditure. It means physical cash or bank desposts – not promises to pay.

So in order to break it down for the startup crew out there, here it is in simple language we can all understand, whether we are techies, designers, craftspeople or retailers.

Cash vs Profit:

It’s impossible to go broke while your business is cash flow positive.

It’s possible to broke while your business is making a profit.

This is why cashflow is King.

It’s also possible to be making a legal loss, while we are dripping in cash. So startups out there only need to focus on one thing. Are we collecting more cash than we are spending?. Do this, and it’s impossible to go out of business.

Hard Stuff or Easy Stuff?

Posted on by Steve Sammartino

Check out the following chart:

We can either,

1. do the easy stuff now.

or

2. do the hard stuff now.

Either choice ultimately leads to the opposite end of the spectrum over time. It’s the same for sport, business, scholarly pursuits, wealth creattion and entrepreneurs. Sure it’s easy to know, but ‘it’s equally easy to forget. When things aren’t going so well, or we are not getting the wins we want – maybe we should consider the chart above, and decide what we were doing a little while ago, and more importantly which tangent we want to be on in the future.

It’s our choice.

Quirky Fact

Posted on by Steve Sammartino

The revenue from car parking & retail at Melbourne Airport – exceeds the revenue generated from Airplane operations…

Airplane operations = $171 million

Car Parking & retail = $183 million

The car parking componant was $70 million two years ago, though the Australian Pacific Airports Corporation has chosen not reveal the revenue split recently. Seems Jerry Seinfeld was right when he said the whole travel saga was a trick to sell the $7 tuna sandwiches!

The question for startups is this: Where is your extraneous revenue hidden in your captive audience?

Simple maths

Posted on by Steve Sammartino

“…I would have, but I’m not very good at maths”. How many times have we heard that?  I love quadratic equations and differential calculus as much as the next guy…

Good news bulletin: Simple Maths rules the business world.

If you’re familiar with the following symbols you’ve got all the number skills you need.

+         –           x          /           %         <          >

You only need grade school math. But, you’ve got to be quick with your numbers, know which ones matter, understand industry averages and which ratio’s to look for – top of mind. The most important of all these symbols is %.

Everything that matters is represented as a percentage:

Gross margins

Net margins

Rates of interest

Return on investment

Price earnings ratios

Growth rates

Quick ratios

Debt to equity

Get to know your key financial indicators. Simple tools used on the share market are your best friend even for a small start up. Fundamental analysis is always based on ratio analysis.

Your company will only ever be what it earns and remember these two things that entrepreneurs often forget:

– Revenue must exceed expenditure

– The crocodile always gets the biggest piece!