Running a small or medium enterprise (SME) may be compared to piloting an aircraft. In the achievement of your objectives, you keep your eye on certain controls. As velocity and altitude are typically the two most important gauges for a pilot, for the owner of an SME, it is usually profitability and cash flow. Too often, SME owners will neglect cash flow. This may result in the business equivalent of crashing an aircraft into a mountainside.
So why is cash flow so important?
The chart below represents one of the most important charts for European financial markets in 2011, perhaps even for global financial markets: *
* Attributon of comment Lou Basenese, and his use of the above chart, on Seeking Alpha
This chart may be broken into three phases:
Albert Einstein said that the greatest force in the universe is the power of compound interest. What we have seen over the past decades in US credit markets is compound, even exponential growth. In the chart below, the blue curve shows a perfect exponential curve, the red curve shows the actual level of US debt (in trillions of dollars).
The cover of the Economist portrays a Euro coin falling from the sky in flames. The Telegraph newspaper recently reported that the UK Treasury is already making contingency plans for the demise of the euro, and British embassies in Eurozone countries are making contingency plans for saving British nationals, given the expected riots: “A senior minister has now revealed the extent of the Government’s concern, saying that Britain is now planning on the basis that a euro collapse is now just a matter of time.”
My last syndicated column, “Ticking Time Bombs: More Volatility on the Horizon” argued that financial markets over the next five to ten years will be characterized by volatility. For those who accept this conclusion, this article now describes what a business owner or manager might do about it.
Every business owner and every CEO takes financial and other decisions with some frequency, that depend upon one’s macroeconomic view of the world. This article argues that the likeliest scenario is simply volatility—potentially wild or crazy gyrations—over the coming few years.
Businessmen frequently talk of Mergers & Acquisitions (M&A), but the emphasis is usually on acquisitions, with relatively little thought given to mergers. Yet in today’s financial markets, it may make even more sense to consider mergers.
The European Private Equity & Venture Capital Association (EVCA)(www.evca.eu) has recently published a special report providing an excellent statistical snapshot of the private equity and venture capital industry as of 2010. It provides a detailed breakdown on sources of capital raised, investment activity, investment per sector and per country, etc.
While it is not possible to do justice to the entire report in a short article, I’d like to focus on some of the interesting statistics that came out of this report:
Running a small business is arguably more difficult than running a large one. I have done both, and that has certainly been my experience. When running a large company, you have resources: specialized staff, better systems, in general, more resources to solve problems as they arise. When running a small company, it is often difficult to afford high-powered staff. A small company might be lacking certain functions altogether, such as controller, HR director or in-house counsel.
Companies often underestimate the need and rationale for having a Board of Directors. The typical model for SME’s in Central Europe is to have a strong owner-manager who makes all decisions single-handedly. This certainly has the advantage of speed of decision-making, and having a clear, unambiguous line of authority. However, there comes a time in the development of a company when a Board of Directors should be considered. This article deals first with the issue of why to have such a Board, and second, what kind of Board members should be appointed.
