Most entrepreneurs begin with big dreams and grand plans born from a ‘gut feeling' that their venture will succeed. Convincing banks and venture capitalists to invest is an arduous task and often one that fails.

That's why many start within their own means. Balancing passion and entrepreneurial spirit with the hard realities of starting capital can make or break a business.

The business schools would not offer deep, insightful lessons on it, nor for that matter is it part of the qualifications for a chartered accountant. However, it has been the guiding principle for many businesses that start with very limited capital.

The concept being referred to here is ‘envelope accounting' a widely accessible, simple finance principle that any aspiring small business promoter would do well to give serious thought.

Here's how it works, each month you start with a DL envelope; on one side record all the funds received and place the cash into the envelope. On the other side write down expenses and pay for everything in cash, ensuring you pay all debtors and, especially, staff on time.

At the end of the month, what is left is the profit and that's what you need to live on. Simple, but it can be life-changing, trust me.

Life-changing

In 1993 when I thought of starting a training and development business in Dubai, I had £500 (Dh2,920) as my starting capital, which also needed to cover my living expenses. Following this principle ensured that I kept to the budget by constantly being aware of exactly how much money I had spent and how much was coming in every month.

No expense was made unless it was absolutely essential for the business. Many small businesses will have been in the survival stage at one point or the other, especially during trying economic times. Mine was in the early days, weeks and months of launching.

In a country where the consequences of bouncing cheques and the dangers of being in debt are life changing, coupled with the fact that very few banks lend to the SME market, getting started can seriously deter many wannabe business owners.

However, you just need to prioritise what you spend on and what you don't in the early or lean times.

One of the first projects I worked on was to train a group of women on telesales skills.

The first training course was produced on a typewriter as I couldn't afford a computer.

I can't tell you how many spelling mistakes were included. Quality came later. Now was about survival. It was out of necessity the envelope accounting approach became integral to the way the business was managed.

With hindsight, I truly believe it was the reason I survived the first few months and then moved on to grow the business in the last 17 years using the same, solid principles.

The envelope meant strict control was maintained of the expenses. There is no way one could spend more than what was coming in. All additional expenses were deferred until the business could afford it. Unfortunately, it's a skill lost in this world of instant gratification.

In addition to managing expenses, having the DL envelopes made it abundantly clear that was needed to drive sales and close deals quickly. A keen eye had to be kept on revenues at all times.

The envelope principles have followed me through all these years in business. Now with 30 people in the team and three business brands, we don't spend what we couldn't ultimately afford to pay in cash, and we have at least six months of all expenses, including payroll, in the bank at any one time.

The rules

The envelope has got bigger and is now managed through a proper accounting system by a qualified finance manager - but the rules remain the same. In business, like in life, do not live beyond your means.

If your business is not bringing in the revenue to upgrade to a new system or recruit new members of staff then wait until it is. Following these guidelines has meant that we can all sleep well at night.

Perhaps the business may not have grown as fast as we could have, but it has grown steadily and consistently and within our means.

I'd advise any entrepreneur with limited capital starting in the UAE to get the basics right.

Don't get buried in debt before you have even begun to trade. Work hard, set goals and have patience.

 

The writer is the CEO of biz-group, a corporate training, teambuilding and business strategy consultancy.