How to get your Business to the 5 year mark

Corporate dinners can be a blur of activity and conversation. Everyone’s usually looking for a chance to charm the right people and hopefully land some kind of a deal. After an evening of blatant flattery and forced laughter at bad jokes, I settled in for the meal and found myself at the same table as Farhan. He was quiet and kept to himself but I had a feeling that there was more to this individual, I mean, still waters do run deep.

The conversation started off in the almost-scripted way that they all do at these sorts of functions, with a casual “Who are you and what do you do?” However when the talks took a more organic tone, I couldn’t seem keep up with the wealth of insight that Farhan has when it comes to business and finance. See, Farhan Qureshi is the founder of Fqureshi Consulting and he’s a Financial Management Specialist with over 12 years of experience. No wonder they called him the Indian Sherlock Holmes of accounting. That level of precision is admittedly rare. He helps create and actively mentors finance teams for organizations with

revenues in excess of 10 million dollars annually. “I wouldn’t say I’m an entrepreneur, an entrepreneur is someone who uses business to solve an existing problem that has an impact on hundreds of thousands of people. I’d feel better defining myself as a businessman, someone who is simply plying his trade” said Farhan.

“After working for about 5 years as an auditor at a leading firm, I noticed there was a huge finance services gap for small and medium sized enterprises (SMEs). Almost the entire market was focused on providing auditing and finance services to the industry leaders. And I struck out on my own to address this SME niche” started Farhan. Being in operation for over 7 years in Kenya’s business climate is an impressive feat in its own right especially given that only 4 per cent of businesses make it past the first year of operation. “Over time I’ve noticed a certain trend with business in that, growth happens

exponentially when the company makes it past the four/five year mark. I’ve seen cases where some companies went from making 3 million a year to 3 million in just a month and I have been trying to figure out why this is the case” continued Farhan.

At White Collar we’re constantly trying to figure out how to help more businesses survive. A big part of this would be finding out how to help these businesses make it to the 5 year mark. Farhan takes us through what to look out for and what to do.

So what are the reasons behind why local businesses/start-ups, fail?

I’ll start by saying one thing, over the period I’ve been consulting for businesses, I’ve been involved in the day to day management of finances and that affords me a lot of insight on how many different businesses handle their cash-flows. I noticed that

businesses rarely, if ever, make money in the first 4 to 5 years of operation. By this I mean, breaking even, let alone generating a substantial profit.

A lot of people go into business expecting solid returns within the first year of operation. When the reality of business hits and they see that the returns are not what they expected, most people give up and go back to formal employment.

You should also realise that when you start a business, for the following period of time you’ll be playing catch-up to the existing players. This will put you at a disadvantage. You may be competing with organizations that are more experienced and more efficient when it comes to service/product delivery. This makes them a good alternative for better quality customers. If you don’t adapt to this by finding a niche that works for you and your company then you won’t be around for very long.

Another thing to also look out for as a business person is ‘financial shocks’. Look at a scenario where the client you were depending on to pay defers payment because of cash-flow problems for the next 3 or 6 months. As a young business or start-up do you have enough of a financial cushion to guard against such a shock? Most young businesses do not and if a similar event happened 3 or 4 more times they end up closing shop.

Lack of trust is also a huge contributing factor. While I wasemployed I saw the auditing firm I worked for get awardedhuge corporate and government tenders. This is because theclients were sure that these guys wouldn’t close up shop anddisappear tomorrow and there was someone who was liablein case of anything going wrong. When I left employmentand set up shop, I thought that the same trust would bepresent because of my history with the firm but I was wrong.Everyone looked at me as a new and untested. There wasvery little trust. I would talk to the same potential clients overand over again and it wasn’t until the third year where theystarted to believe that I was serious and dedicated. With trustit’s all about time, there is no shortcut to building trust.

A lot of entrepreneurs have a kind of ‘lack of focus’. What Imean is, they want to implement so many things at the sametime. Maybe it comes as a part of their creativity but whatyou need to understand is every new venture requires a lot ofinvestment. You have to invest both time and money. If theexisting venture is not well established it will suffer becauseof an attention deficit and chances are the new venture won’twork out and that way you lose out on making both ventures work.

What would you advise? How do we get more businesses to the 5 year mark?

There are quite a few ideas I have, but they are tied to specific business models. But in a more general sense, I’d say no matter what business you’re in you should only start after you’ve saved enough to get you through the starting phase of the business. This is a very tough time for companies that are starting out and they need all the financial security that they can get. Having enough capital to make it through this phase is one of the biggest deciding factors on whether a business will make it. If you haven’t saved enough you could consider bringing financial partners on board. The capital that comes with these partners will enable the company to have a better financial footing.

I’d also advise that you don’t diversify until your first product/ venture is successful and to go a step further, ensure that you’ve hired well enough such that its systems function independent of your involvement. Like I stated before diversifying too early can be a business killer. However, if the first venture isn’t working at all and there is zero growth then consider trying out something else and make sure to consult and be methodical about how you make the change.

Be as frugal as possible! In the first years of business hesitate to spend on anything that isn’t directly tied to generating more sales. This allows the business to have ‘rainy day’ fund in case of anything. The first 4-5 years of business should be more inclined towards savings and ploughing back earnings to secure the business. Your ability to get and service clients isn’t tied to the fancy office or car. You’ll get clients if you’re better than the next guy at performing your job. Clients don’t care about whether you have a nice office or not. They care about whether you can deliver!

And from a finance perspective I’d advise every entrepreneur to always have about 6 months’ worth of expenses saved in the account. Working like this has a wide range of benefits. First of all financial security gives you the freedom to work without pressure and perform optimally. It also allows you sustain the shock of delayed payments from clients. It’s a safe move. ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊ ◊

Farhan Qureshi, in his element