Starting Capital vs. Working Capital

I recently listened in on an interview of Mike Cuban (Shark Tank Investor) by Bloomberg and he said something very interesting.

He said that small businesses do not fail for lack of capital; it was for lack of effort towards working smart by the entrpreneurs. Shortly after, he went on to say that one of the challenges he has seen many entrepreneurs encounter in the initial stages of their business is that while they were doing the math of starting their business, they forgot to include a working capital.

What is the relation? Well think about it. Capital is not just money. It is also time, passion, expertise, commitment and effort. Start up capital is what you require for the business to start – for you to get the product into the market (or service). It is what you require to put in so that customers can start coming. Working capital is what you need to keep putting in until the business can support and run itself

When you are buying that initial stock, paying that first rent and that licence, that is start up. What about running the business before you receive the first revenue? If your collections by the end of the month are not sufficient to meet the monthly costs, you will be required to go back to your pocket. The following month the same might happen. Every time you go back to your pocket, what you give is the working capital.

You have to budget for it when starting the business otherwise you will begin to think there is something wrong with your business.

Businesses are like babies. At infancy, they will keep demanding everything you can give and that is why it is said that running a business is not for the faint hearted. At teen age and young adulthood, they seem they can stand on their own and give you the freedom. But that’s a fallacy. Even the most veteran of businessmen will tell you, the day you begin to see that your business can run it self. Keep close and start looking closer. There are things you will take for granted and they will be the cause of its lacklustre performance.

At maturity, just like fully grown children, businesses will definitely be standing on their own if their foundation was right and they can now get to multiply.

Start your business on the right footing. It doesn’t have to be perfect bit it must of essence be right.

July 1 marks the beginning of the 2nd half of the year and if you are at a place where your business idea or existing business needs a fresh set of eyes and ears to keep you working at it, I welcome you to a One Day Idea Clinic at Nairobi’s, UBS building, Ndemi Road, off Ngong Road. Slots are limited and participation must be confirmed before hand.

Until tomorrow…

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