In my Dragon’s Den blog we discussed some of the fundamental issues to be considered when formulating a business plan. These bring us to other important factors that must also be considered not only in the context of budgets and funding but also when submitting or checking an insurance claim.

We refer to them as ‘the three Cs’ – Cash, Capacity and Customers.

The term ‘cash is king’ is frequently heard in business circles and it is justifiably so. Cash is the oil that prevents the business machine from seizing up and cash flow is a fundamental facet of any business. Sometimes even successful businesses – on paper at least – fail due to overtrading because they are unable to generate enough positive cash flows to maintain momentum.

How to Keep Your Cash Flowing

So, when preparing or reviewing business plans or insurance claims, one of the first issues we raise is ‘how does or will the business create cash?’

The second C is Capacity – does the business have the day-to-day capacity to maintain current levels of production or meet planned increases in production? Quite often we see instances where business plans are focused solely on increasing sales but they forget that increased sales create increased business activity and that increased activity creates increased costs, which sometimes mean having to find larger premises, more staff, and higher overheads. In these instances, a detailed understanding of the effects of changes in activity on what are known as variable and fixed operating costs is required, but this is often overlooked.

Take the case, for instance, of the sole trader who created unique pieces of art from jetsam. His business had been very successful but that all changed on the day he seriously injured his hand and he was unable to work again in this specialist area. His insurance claim for loss of income was substantial, based on the assumption that he would have been able to continue making sales and meet ever-increasing demand for his products.

Unfortunately, on reviewing his claim, it was discovered that, in the period leading up to his accident, he had been working very long days which had caused him to become tired and had been a cause of his accident. Thus, it was apparent that he was already working at full capacity. Part of his claim failed because he could not overcome the issue of how he would have been able either to increase the length of his typical work day, or obtain an equally gifted associate, in order to meet anticipated demand.

Demand leads us to the third C – Customers, without whom there would be no demand and no business. Again, a detailed understanding of the product or service, and competition, is required if one is to successfully create a business plan or support an insurance claim that is based on demand for it. One is reminded that, on occasions, products have been created as solutions for problems that do not exist, so it is important to understand how one would attract new customers and then retain them.