Way too many social enterprises are way too undercapitalized. They don’t have the cash on hand to make rational spending decisions on staffing, inventory, professional expertise, marketing, and so on, to grow their venture. Their tendency is not only to go cheap, but to go without for things they desperately need to turn their social enterprise idea into successful reality.
This is not unique to the social enterprise world. Many failures in the business world come as a result of cash flow problems. Numerous companies go under because they run out of money, even while they’re profitable on paper. They can’t pay their bills, so their suppliers or creditors or staff walk out on them, and it’s all over.
And I would say that most social enterprises are cash poor, running on fumes, never realizing their full potential due to insufficient cash flow.
What to do about it? Well, to come back to an important point, write a solid business plan. Or update the one you’ve got. Carefully prepare monthly cash flow projections for at least your first full year in business. Track payables (when you have to pay for stuff) and receivables (when you get paid). Most likely there’ll be some months when you won’t have enough cash to pay your bills. Develop strategies such as a line of credit or an angel investor to get over those bumps in the road. And keep your fixed costs as low as possible.
Starting and operating a social enterprise is difficult enough. Don’t start your venture until you’re confident you won’t be running on empty. In cars and in business, you need gas or you won’t go anywhere.
Rolfe Larson provides consulting and training in areas such as strategic planning, market research, feasibility analysis, business planning, marketing and implementation strategies.