Category: Business

The uncomfortable fact about small business failure is that most of the businesses that fail are profitable on paper at the point they run out of money. Profit is an accounting result over a period. Cash is whether you can pay the invoice that arrives on Friday. They are not the same, and confusing them is the single most expensive mistake a small firm makes.

The four numbers

You do not need a finance function to run a business well. You need four figures, updated regularly enough to be current.

• Cash in the bank today, and the same figure a week ago
• Money owed to you, split by how overdue it is
• Money you owe, with the dates it falls due
• Committed outgoings for the next quarter, including tax

Put them on one page. If that page is only updated monthly, it is a history lesson rather than a management tool. Weekly is enough for most small businesses.

The cash conversion cycle

The underlying question is how long money is tied up between paying for something and being paid for it. A retailer buying stock pays the supplier, holds the stock, sells it, and then waits for the card settlement or the invoice. Every one of those stages consumes cash.

Shortening any stage frees money without any increase in sales. Holding less stock, invoicing on the day rather than at month end, and taking deposits on large orders all do more for cash position than a marginal improvement in margin.

Growth consumes cash

This is the trap that catches good businesses. Growing means buying more stock or hiring more people before the additional revenue arrives. A firm growing quickly can be more profitable each month and closer to insolvency each month at the same time.

If you are planning growth, plan the cash to fund it in the same conversation. The question is not whether the expansion will be profitable but how many months of outflow come before the inflow, and whether you can survive them.

Chase debt without apology

Late payment is a form of borrowing from you, interest free, and most small firms are far too polite about it. Set terms clearly on the invoice, send the invoice immediately, and follow up the day it becomes overdue rather than a fortnight later.

A simple escalation works: a reminder on the due date, a phone call a week later, and a firm written notice after that. Most late payment is administrative rather than deliberate, and a call to the right person clears it.

Keep a buffer and know your break-even

Work out what the business costs to run in a month with no sales at all. That figure, multiplied by the number of months you want to be able to survive, is your buffer. Keeping it separate from the working account is what stops it being spent.

Also know your break-even point in units or transactions, not just in pounds. A shop owner who knows the day’s takings needed to cover the day’s costs can make sensible decisions on the shop floor, which is where most of them are actually made.

Packaging is usually the last thing a small manufacturer thinks about and the first thing a customer notices. It arrives at the end of the process, after the product is finished and the launch date is fixed, which is exactly why so much of it is wasteful. Eco design tries to move that decision forward, to the point where changing it is still cheap.

The principle is simple enough. You look at the whole life of the pack, from the raw material through to what happens when someone throws it away, and you try to reduce the damage at every stage rather than optimising one part and making another worse. The classic failure is switching to a material that is easier to recycle but so much heavier that the extra transport emissions wipe out the gain.

Start by measuring what you already use

Before any redesign, weigh things. Take a representative order, weigh every component of the packaging separately, and record it. Board, tape, void fill, labels, inner bags, pallet wrap. Most people are surprised by two numbers: how much the void fill weighs in aggregate, and how much board is being used to ship air.

That single audit usually finds savings that need no new supplier at all. Cutting box sizes so products do not rattle removes both board and fill. Ordering two extra box sizes often reduces total material more than any material substitution.

The methodologies worth knowing

Life cycle assessment is the formal method. A full LCA is expensive and slow, and for a small company it is rarely justified. What is useful is a simplified or streamlined LCA, where you assess a handful of impact categories rather than all of them, and accept approximate data.

• Carbon footprint per unit shipped, which is easy to estimate from weight and material type
• Recyclability in the actual local waste stream, not in theory
• Recycled content of the incoming material
• Whether the pack can be reused before it is disposed of

The ten golden rules of eco design are a decent checklist for anyone starting out. Avoid toxic materials, reduce weight and volume, use recycled and recyclable materials, design for disassembly, and avoid mixing materials that cannot be separated. That last point is the one most often broken. A card box with a plastic window laminated to it is not really recyclable in most kerbside collections, whatever the label says.

Tools you can actually use

There are paid platforms that will model an entire portfolio, and they are worth it if packaging is a large part of your cost base. For everyone else, the free tools go a long way. Several trade bodies publish packaging assessment spreadsheets that let you enter weights and materials and get a comparative score. The score is not scientifically precise, but it is consistent, which is what you need when comparing two options.

Supplier data is the other underused resource. Board manufacturers publish recycled content and grammage; asking for it costs nothing and often reveals that a cheaper grade performs the same in your application.

Where it usually goes wrong

Two mistakes recur. The first is designing for a recycling infrastructure that does not exist where your customers live. Compostable films are the common example: they need industrial composting, and most households do not have access to it, so the film ends up in landfill anyway.

The second is treating eco design as a marketing exercise. If the redesign does not reduce weight, material count or waste, then it is a claim rather than an improvement, and claims are increasingly checked. Get the measurement right first and the marketing takes care of itself.