The Entrepreneur's Acid Test

Here, at Skopus Business Consultants, we encounter many entrepreneurs that are in the start-up phase of their planned business.  What always strikes us is how many entrepreneurs, who start up, believe that a big business loan equates to equally big profits.

Consider a case where someone wants to borrow Ten Million Rand over five years at nine percent per annum.  As simple calculation will show that the borrower will have to pay back almost R 208 000-00 (Two Hundred and Eight Thousand Rand) a month!  Over a twelve-month period, such loan will cost the enterprise almost R 2 500 000-00 (Two and a Half Million Rand) per annum.

Assuming that one has meet all the requirements from a bank or an investor and that one has received such an amount of finance, what does it actually mean to the entrepreneur?

It means that one has to sell at least R 208 000-00’s worth of goods just to show a zero profit!  It means that the entrepreneur would have to work extremely hard to sell enough to cover such loan repayment.

At Skopus Business Consultants, we are not pessimists.  Indeed, we know of many cases where entrepreneurs borrowed a large sum of money and where there are success stories on how that risk paid off in the end.  In fact, if the entrepreneur’s business plan convinces the lender or an investor of having potential, such loan could easily be granted.  If such loan is then granted, it stands to reason how the entrepreneur will make enough sales to cover the capital loan, pay all the other costs, and still make a modest profit.

This is the true acid test for the entrepreneur: putting the cleverly sculpted words of the business plan into three hard results:

1.      Sales;

2.      Sales;

3.      Sales.

Many a business plan that we encounter is vague about how hard results will be achieved.  We spend many hours with our clients to clarify and test their sales and marketing plans.  We insist that the business plan is not just a piece of paper to hand in when asking for a loan.  In fact, another perspective of our acid test is that anyone who does not see the business plan as a living document must question his or her capability to make the business plan come true.

Whoever sees his or her business plan as a historical inconvenience has no future to plan for.

This is the official blog of Skopus Business Consultants.  Visit us at www.skopus.co.za