The business

The week up to the last weekend I was trying to get the cash flow spreadsheet to look viable.

I post updates to this blog before switching off my laptop (I'm English and refuse to call it a notebook) and driving off to where I work.

When I got to the hotel last weekend I had another go and found I now got reasonable, viable cash flows. Wierd but true. I double checked the spreadsheet and it maked sense.

So, we now can have viable cash sheet projections and basically a financial model which works.

This week I'll have to put in more scenarios and see what cash flow projections come out. We actually can't really know how much of this product people will buy. So the pricing scenarios have to ensure we're viable for small, large and massive volumes. I think it can be done.

It looks like I'm getting a slight cold. Hopefully it'll pass. On Friday I'm flying to Munich to see someone I know about a work proposition he has for me. I worked in Munich for a year and would be very happy to go back. Much better standard of living - and cost of living - than the UK.

Should things work out I'll still develop the business and update this blog so readers need not worry. It'll just be done from a cleaner, less violent country.

As a result I won't be able to update the blog until Monday (a UK bank holiday) - I hope all you readers out there can hang on.

I've been thinking ...

... maybe we should produce a herbal remedy for gullability ...

... just a thought but I wanted to get that in before someone else claims it as their own.

Having managed to get the balance sheet to balance I moved on to cash flows.

During the week, in the hotel near where I work, I put in various production/sales scenarios. I actually managed to get us out of insolvency by reducing the production run, yet not by so much that we fail to break even. But we'd only go into profit after 12 months.

I was going to do some investment analysis (internal rate of return, net present value etc) on these figures but first added VAT (aka sales or purchase tax) to our cost model.

Bother.

This completely blew the cash flow.

In the country where we'll operate VAT has to be paid every month, in fact on the 15th day of the second month after the goods have been delivered. And it's a whopping 22% of income.

But we anticipate some customers paying 100 days after delivery, maybe more.

Just putting the payment lag at three months after delivery caused big problems with the cash flow when I factor in VAT.

And increasing the numbers produced simply increases the cash flow problem, both in size and duration.

Now some astute readers (if I have any, astute or otherwise) will wonder why I'm revealing this. Aren't I giving potential competitors and customers an indication of our problems?

Well, my response is not really. All businesses have cash flow problems. The ones that think they don't have such problems have the biggest problems of all.

And this is what we do: discover problems and find solutions. It'll pass and then we'll have other problems. That's business.

I also got responses to my responses from the designer. I'd sent an email of responses to Peter (see previous entry) last week. Fortunately they were reasonably nicely worded as Peter forwarded them to the designer. He replied fully (English isn't his first language) and put to rest some concerns I have.

I also showed the designs to a temp at work who is a graduate in graphic design. She gave some very useful feedback and some good ideas which can be incorporated into the designs.

I also filled in and sent back to Peter my bits of the registration form (my bits being my signiature). A few more steps and we'll be a registered company.

I finally managed to balance the balance sheet.

It wasn't easy. It's been almost 20 years since I briefly touched on this during my engineering degree course.

I trawelled through the web and found a good site which explained this: http://www.bizhelp24.com

It still took me a while to get to grips with our balance sheet. Once - and it took a while - I understood it then it's quite easy. I had looked at other sites but they kinda glossed over this issue.

Although I haven't looked at cash flows yet, I know we'll be insolvent under our current structure by the first month, so we'll need to factor in some intermediate financing - e.g. a bank loan or overdraft.

I'm also a bit concerned about accounting conventions. We won't be operating in the UK and I can't yet read the language of the country where we will be operating (somewhere in Europe). But fortunately they have business web sites in English.

Peter sent me the incorporation documents to sign so we're a few days away from this. At last.

And he also sent me a PDF file showing logos, business cards and letterheads. So, Friday was another red ink day. As soon as there's anything subjective like logos etc it's easy to be critical but harder to be constructive. A few key things I was using as a criteria was:

- how would the designs look if they were sent by fax?
- are the colours Internet safe?
- how international are the text, e.g. phone numbers etc?
- could it be done cheaper but still just as visually effective?

This weekend was Easter in the UK, i.e. a long weekend and I'll soon be off to work a big long drive away. At least it'll be a four day week.

The nearer we get to incorporation the slower things seem to take.

But then again it's very difficult being away from the internet for five of the seven days per week.

Oh, and my Palm to email service has failed for some reason.

Yesterday I looked at a business plan Peter had sent me. It's very good. I went through it in detail. It's in Word format so I could add comment on the side. In red. Which must be disheartening to read. It makes the corrections look fierce a bit like emails: they're read harsher than they're written.

I also did some more review of the financial spreadsheet he'd sent. To gain a good understanding I knocked up a new one from scratch. This was based on Peter's figures supplied. It's no better than his one but creating it help me get a better feel.

What's nice is that the break-even point is jolly low. Even if our cost estimates are wildly out (which I doubt) the break-even would still be low. However, making a big fat profit would be difficult at first - unit price has to be low so we need very large sales. Not at all unlikely really.

Later on today, when I get to my hotel (it's Sunday so I drive to the town where I'll be working tomorrow) I'll look at the final part of the spreadsheet, the balance sheet.

At the moment it doesn't balance but I'm sure I'll fix the problem. Funnily enough I misunderstood what was meant by "look at the spreadsheet". So I phoned Peter to tell him the balance sheet wasn't balancing. His reply was that that's why he wanted me to have a look at it!

I've just had a look at the email account I set up for this blog. Not one email. Not even spam.

Maybe I should set up a blog about writing a blog which no-one reads.