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Finance for fledgling entrepreneurs

So, the economy has you down? Well good news, it’s not just you – it is a collective misery. One that seems to be constantly reinforced by little pressure points such as the price of eggs, petrol, rent and every other conceivably irksome increase in price. With the UK trailing the G7 in economic performance, the fresh faced entrepreneur striking out to build a second income or to replace a lost job is under mind boggling pressure to succeed.

After working with 300+ businesses/entrepreneurs, I’ve concluded that we (the broader UK entrepreneur ecosystem) have another substantial issue to tackle. Financial literacy. Over 40% of UK adults need help managing money, so does it surprise us that entrepreneurs are struggling as well? This manifests differently across the participants we work with, but the fundamental issue persists regardless of formal education or professional experience. You can be a corporate veteran from a Fortune/FTSE 50 or a fry cook – it does not matter. I’ve seen fry cooks with the ability to mentally calculate, manage and grow their financial position with the precision of the best excel spreadsheets and I’ve seen trained accountants/finance managers prioritize meaningless reports that obfuscate the core issues of the business. If you are an entrepreneur and are struggling with financials, we need to break it down to practical and simple numbers so that we can feel confident in our understanding of the business. Stunningly, the horror that H.P. Lovecraft draws upon is the exact same fear that preys on us in running a business. The unknown.

We can tackle the unknown by addressing the following three topics.

1. Cash Management Out of my three points, this is the one entrepreneur’s experience most viscerally. Every month you see your bank account balance and you wonder if you are going to have enough to pay the rent, the next invoice, or your own salary. Too often I’ve seen people manage cash in a reactionary manner – looking at the accounting software at the end of the month, paying bills as and when, and generally avoiding the topic. YOU DO NOT HAVE THIS LUXURY. In fact, most people do not (including major corporations). In the early years of building a business, you as the founder must consistently have a clear understanding of the financial position of the business (this does not imply you get to stop having this clarity later on). This MUST fall on you because often there is no one else to help you with the numbers – more on this in point 3. Every day, you must be operating with clarity as to what figures define success, failure, and breakeven. There is no room for error, because over 60% of micro enterprises either are unsure about how much cash reserves they have, or they have less than 3 months of reserves (Source pg. 13). I appreciate that often it is the biggest point of stress for an entrepreneur, no one wants to look at stressful information. The contradiction is that without studying your numbers, there is very little chance you will overcome the gap. It’s like jumping across a chasm without ever looking at how big it is. So what can be done about it?

  • Set up daily rituals in bite sized pieces.

Don’t try to conquer Rome in one day. You’ve got enough on your plate. Set up time in the morning to review key figures. Maybe you run a retail shop and you need to calculate your total sales for the month or week. Maybe you are a consultant and you need to calculate the value of your sales pipeline. Give yourself defined windows of time that you stick to.

  • Set up systems to automatically do the mundane and terrible things.

If you are still using a manual cash register, can I ask you why? Are you still inputting invoices in manually? Are you looking at your statement to add up your incomings/outgoings? All these things are easily automated. Don’t waste your time doing things that other people have simplified for you. I know it is tempting to say, “It’s cheaper this way” Because you don’t want to pay for the monthly license for a Point of Sale, but the reality is the £££ spent on the POS is worth the investment. It takes you from counting beans to thinking creatively about how many beans you should be selling, how to sell the beans, and what types of beans might have the best margin.

  • Work towards a goal

Do you know how much money you need to generate to get the business to survive? Do you have crystal clear clarity as to when the existential dread of business failure is going to end? WHY NOT!? Free yourself from this curse. If you don’t know what you are working to, then good news that’s point number 2.

2. Unit economics If I was to ask you how much money do you make on each transaction, would you know the answer? Do you know how your actions fuel the revenue/turnover of your business? Why do you do what you do? How many of these transactions do you need to keep the bills paid? These questions drive towards understanding the unit economics of your business. ‘Unit’ because we are trying to understand the fundamental metric/measure of your business – this could be one item, one customer, or one service. ‘Economics’ because I want to understand the financial implication of that one measure. If I sell croissants or a selection of baked goods, I should know how much margin I am capturing every time someone buys something. You might think that it is impossible to do that for your business especially if you have lots of products, but this is why I said that you need to “Set up systems to automatically do the mundane and terrible things.” With a run of the mill Point of Sale system I can see the exact number of products bought and sold with a tap of the button AND most systems provide you with the opportunity to record cost against that item by item. Giving you a live and accurate understanding of how much money you are actually making each time a product is sold. Now compare this against your recurring costs – stuff like rent, how much you want/should be paying yourself, insurance and etc. Let’s say that totals up to £10k a month. If the average margin (not COST) of my baked goods is something like £0.50 per unit, I can easily identify how many baked goods I need to be moving every day. £10,000 monthly costs / £0.50 per baked good = 20,000 baked goods to cover monthly costs.


Time to ask some practical questions after hearing that number. Can I realistically sell 20,000 croissants/baked goods every month? 666 baked goods a day (not exactly a lucky number.) What do I need to do to manage my business towards success if the baked goods game isn’t going to pay the bills? Maybe this is where we insert coffee sales? Will our monthly bills be more conquerable if we add that to the game? Possibly! Simplifying the math a little here: £0.50 per baked good £1 margin per coffee/hot drink And we always sell our coffee + baked goods together (not a realistic assumption but for easy maths)

£1.5 margin per baked good + coffee £10,000 monthly costs / £1.50 margin per combo = 6,666 combos per month or 222 per day. Sounds a little easier to pull off. Not way easier but definitely a goal we can work towards. With these numbers you can have clear objectives every single day. Maybe you work towards the 222 combos per day, or maybe you have a new objective to get the cost of the baked goods/coffee down so that your margin can be bigger! With this information you can have a clear goal that fits into your ritual from topic number 1! For a literal masterclass on unit economics, go here. (I wish this link paid me, but it does not.) Alternatively, join an Allia programme and get 1×1 support to do it 3. Roadmap If you’ve started working on the two themes from above, then I have even more exciting news for you. Number 3 – Roadmap is partly done! With the goals from your unit economics calculation you can easily set a target for turnover, sales quotas, and many other strategic decisions. When thinking about your roadmap, remember that you have a finite cash position and that 99 times out of 100 you will be funding your next ‘level up’ yourself. Meaning there is going to be limited opportunity for someone else to pay/invest/loan you the money for that upgrade – whether that be a new social media marketing person or a new mixing machine to make dough for baked goods. It is most likely that you are going to need to follow the classic method of ‘saving’ for your next thing. Cue Shocked Gasp.

With that said let’s do some quick bullets:

  • Realistic goals with navigable timelines

Using your unit economics, I hope you’ve identified a realistic objective that will give you confidence and inspire you. What is the point of running a business if it doesn’t work for you?

  • Include your time as a cost

In planning for the next year, you have to be realistic about the cost of your time. Not because you need to pay yourself nicely or whatever, but because you need to realize that your time is not like other people’s time. Other people will not work for you for free. You might for a little while, but you can’t do it indefinitely. Understanding the value of your time will help you prepare to pay for others to do the work you might not be able to do sometimes.

  • Identify your next ‘level up’

I’ve had a lot of people ask me, Andrew when do I get a finance person, accountant, or <insert title> person in to help me take care of stuff. Reality is, there are no absolute terms for this. You’ve got to identify it based off what will enable you to do more (if that’s what you want.) If you are a legend at doing your taxes/bookkeeping and it doesn’t detract from your objective to grow the business, then maybe you don’t need a bookkeeper for a while. However, if you are slaving away at something you are inherently bad at (maybe social media), then maybe you need to ask yourself how do I make enough money to pay (add to your recurring expenses) and what does that look like in terms of baked goods/combos? Adding £2k a month can increase your baked good sales requirement by 1333 combos. Can you handle that? Is that worth it? Can the marketing person create 1333 new combo sales? HR and Finance are more challenging because they don’t directly affect sales, but think of it in terms of time saved. Are you able to save enough time to do other important things in the business? Cash Management. Unit Economics. Roadmap. Revisit these themes as often as you can. There will never be time when this isn’t important. I know this is a whirlwind tour of pretty big issues, but don’t let that stress you out. Allia is here for you. If you’ve got a particular issue and want some support, check out our programmes. Alternatively, if you’ve already been on a programme and you’d like to get a refresher – reach out! We’d love to speak with you again and see how we can continue to support you on your adventure.

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