Working capital & the rich and famous

26Apr10

Just been reading through yesterday’s Sunday Times Rich List (link). I’ve always been a fan although last years was far more enjoyable as it was full of faces who’d had a couple of hundred million wiped off their balances (the 2009 car crash had a combined loss of £155bn). Gives a bit of perspective to mere commoners like myself!

After a cursory glance to see if I knew any of them personally or owed any of them money (a ‘no’, and a ‘not directly’, unless you count the Queen’s link to HMRC) for me its interesting for the original source of their wealth. Okay so the first 100 or so are almost exclusively from family wealth, commodities and prime property but after that it gets really interesting. The number of people who have built and sold companies that most of us have never heard of, for money we couldn’t dream of. It shows that this path remains the real route to freedom and success and I don’t just mean the pure financial pay off. When you see the likes of John Caudwell (link) and Felix Dennis (link) above Terry Leahy (CEO of Tesco, the largest retailer in the UK but ultimately just an employee) it reminds you that the lonely path will, long term, always be the most rewarding.

The other element that struck me was the number of retailers and SME owners in the immediate families of these big players. I’m not knocking it, after all if my wife was a millionaire many times over I wouldn’t want to answer to anyone (else) and likewise wouldn’t want to be sat at home twiddling my thumbs so its an obvious path. That said I am not sure they share one of the biggest challenges we faced in the early days – working capital, or more explicitly lack of working capital. I’m sure when setting up Neuro Brands (Diana Jenkins), or a gastropub (Tamara Ecclestone) they have had plenty of challenges and total respect for the success they’ve had. My point is merely that the balance between having absolute faith in your concept and enough money to keep it alive is surely easier if, frankly, you will always have enough money to keep it alive.

The king of the capital game

Anyone who has ever played Monopoly knows that the first couple of goes round the board are easy, its just a race with dice but as soon as people start buying streets and you get hit with a few rent demands you suddenly take a little more care of your cash, you stop buying the Stations and the utilities and revert to the most defensive of strategies regardless of what you felt was right at the outset. You sell your hotels and your houses to just keep the wolf from the door and hang in the game that little bit longer. Running a small business often feels the same, only with higher stakes. In the current climate the banks arent keen to listen (although in my experience that is thawing out a little) and the deals on offer from alternatives arent always appealing, so the competitor who has his wife, partner, Mum or Dad as the banker is always at an advantage in life, much as in Monopoly.

I don’t want this to sound like sour grapes (honestly) or jealousy (okay a little bit), but whenever  I read business books or more specifically small business books there is nearly always a chapter on cash-flow yet only one or two sentences on working capital. Yet for me the latter is just as critical, and in the early years its even more important than the former. To me working capital is like the wheels on the plane, you need it to get off the ground. Without that you might have the best jet in town but you aren’t going anywhere. What I am trying to say is that if you have cash-flow problems in the first 6 months of business that is not the problem, the problem is working capital –  you simply didn’t have enough cash to get off the ground in the first place.

Filed under: Entrepreneur, Training   |  Leave a Comment
Tags: business launch, cashflow, Caudwell, Ecclestone, felix dennis, Monopoly, start ups, Sunday Times Rich list, Terry leahy, working capital