Panoptic Strategies

A Catalyst for Growth and Sustainability

for Small to Mid Sized Companies

Working Capital and Staffing: Don't Let These Challenges Drag You Down


Originally published in the July 2016 Issue of The Business Journal


Over the years I've written often on the subject of starting a business and two major challenges always emerge: working capital and staffing. In today's tight credit and labor environment nothing has changed.

Let's tackle working capital first because without the judicious use of it, worrying about staffing will be moot. You've probably read countless times that most small businesses fail because of insufficient funds. There's a reason for that: it's true.

Entrepreneurs are inherently optimistic which leads to their tendency to overestimate sales and underestimate expenses. One should do just the opposite: start with the worst case scenario and determine if you have enough cash to get through the first year of operation.

Keep in mind, in the beginning you'll be on your own. Banks don't typically loan money to a business without at least two years of financials. Initial funding will invariably come from your own resources (savings, credit cards, second mortgage, etc) or from friends and family.

On the flip side also examine what your capital needs may be if your business takes off. Will you have enough money to fuel the growth or will you find yourself turning business away? This is a happier problem and one where you'll likely have options. Although expensive, accounts receivables, and even purchase orders, can be financed to accelerate cash flow.

Some final working capital tips. Focus your initial expenditures only on items that are crucial to your core business. For example: if your desired location works, don't spend money remodeling to make it perfect. Perfect is the enemy of the good, so target your financial resources on "must haves" not "nice to haves."

Resist the desire to buy everything new. New stuff is nice but ask yourself if a new desk, phone system, or shelves in a warehouse will improve your chances of success? In some cases the answer may be yes. If you were opening a high-end day-spa the look would be important and projecting a "hand me down" image could be a show-stopper. However, even in that scenario there may be areas of the business that the customer doesn't see where you could save valuable dollars.

Assuming you have enough working capital the next biggest challenge is finding competent staff. In many sectors this is a national problem but for Vermont and the Monadnock Region the challenges are magnified. Whether its Vermont's higher cost of living, or Monadnock's need for sophisticated manufacturing skills make hiring and retaining key staff is an on-going local concern.

Unfortunately there are no magic bullets but there may be ways to move the needle. Consider offering some sort of profit-sharing plan. Doing so can get your employees more invested in your business and will increase their compensation and retention if things go well. I'm doing this with a restaurant I've just opened. As a semi-absentee owner, profit-sharing will hopefully help me develop a staff that will treat the business as their own.

There may also be other options that won't necessarily cost more. Sometimes it isn't only about dollars so flexibility and offering potential employees flexible hours might help tip the scales. For instance: a work week of four 10-hour days saves employees' travel costs and can provide built-in three-day weekends. Think about whether two part-time people can effectively fill one full time role. And sometimes the right skills can be found by considering retired people who are looking for limited hours.

The bottom line is in the hiring process don't confine yourself to traditional models. And in planning your financial needs think worst case; try to identify contingency sources; and only spend money on items essential to the start-up phase.

Once your business it hitting on all cylinders you can always treat yourself to a new desk.