“The economy is in recession,” “company X poached my biggest client,” “government policies are putting us out of business,” and the list goes on. We hear such lamentations every other day from business owners and executives. And credit to them for soldiering on through those torrid times more often than not. 

Economic and socio-political challenges are harsh realities, particularly in our beloved Africa. But there should never be excuses for any business going under or not thriving as it should. In my native language, we have a proverb that translates to, “to be forewarned is to be forearmed.”

If we know the key elements that are proven to sustain any business in any environment or culture, we stand a better chance of effectively planning against all challenges, both foreseen and the unseen ones. I’d argue there are five such key elements which we’ll discuss in the following paragraphs.

They’re all forms of capital

In my mind, the five elements are all forms of capital which require careful and deliberate investment. We should be prepared to devote resources in ensuring we lock down sufficient brand, investment, product, human and working capital to ensure business sustainability over the long haul.

Let’s look at them in detail.

Investment Capital 

We’ll start with the obvious one and get it out of the way. Investment capital is essentially what most people immediately think of when they hear the word capital. 

It’s that buy in from your partners or self which manifests as money needed to start or grow a business. Growing companies usually get it in stages starting from the seed capital stage where investors grant a business some money for lift off without expecting any return.

Several rounds of funding usually follow during the different stages of the business growth, most commonly known as Series A, B or C rounds of funding. In most cases, investors buy equity through such investments and expect a return.

Amongst many other things, smart business decisions should involve using investment capital in acquiring other forms of capital. As a stand-alone, it’s not a symbol of and neither does it guarantee business success.

Brand Capital

This is essentially the weight and wealth of your name. What do people think of when they hear of your business? How do they perceive and position it relative to your competitors? How do they rate your product or service delivery?

In the accounting world, they try to assign a value to this form of capital and call it “goodwill.” Cultivating sufficient brand capital is not only about marketing functions such as billboards, fliers, sales promotions etc. It’s about the unsaid promise you fulfill, the value you give your customers and how your story aligns with theirs.

Invest some time and resources in understanding your own story, sharing it with your customers, making promises and constantly delivering.

Product/Service Capital 

We usually do well in putting together product capital, as we should. It’s what our business is built upon, our response and solution to a customer’s problem.

If a customer’s problem is access to microfinance services and you build a mobile application that grants such, there’s your product capital. Start-ups and SMEs usually do better in acquiring product capital because it’s what gives relevance and grants them access to markets.

However, without constant innovation and investment in understanding customers’ changing needs and habits, bigger businesses may lose a grip on the product or service capital initially acquired when they started. Research and development should never be treated as a nice-to-have and neither are compromises on product or service quality as a result of organizational growth. 

Product or service capital gives you relevance when you start and will help you stay relevant throughout the changing times and seasons.

Human Capital

It’s no secret that who’s on your team is crucially as important as who’s not on it. I’d argue your team is the backbone of your business. For a time in African culture, we’ve had the tendency of employing our relatives without giving them sufficient training to fulfill the job functions or getting on board less qualified people to avoid the big wages and salaries.

This is all counter-productive. Not only does it rob you off experienced and smart people to help you continuously improve your business culture and offerings, but can subtract brand, product, investment as well as working capital.

Investment in human capital isn’t only hiring and firing. It includes taking proper care of your team; investing in their growth, helping them achieve their goals and dreams, ensuring they feel valued, respected and working in an environment they feel safe in.

Working Capital

Referred to as the life blood of any business, working capital is the liquid cash needed for everyday business transactions.

A few years ago, I had a colleague who was delighted that they managed to secure an additional fleet of trucks using their business savings as well as a cash injection from the bank. They unfortunately went under a few months later. Employees left because of unpaid salaries and even if they made constant sales, they couldn’t service some of the fleet on time as their corporate customers didn’t always pay in cash. They were owed huge sums of money which never materialized on time and the business suffocated.

Accountants create a cashflow statement as part of the key financial statements which helps in staying on top of your business’ liquidity management. Additionally, as you manage your working capital, take note of how you also manage your supplier relationships. There must be a balance. Some businesses have lost key suppliers thus brand capital in the name of “working capital” management.

If needed, you may evaluate options of getting additional working capital in the form of debt or equity whenever liquidity crunch strikes.

Conclusion

It goes without saying that investment into your business isn’t a once off affair but the lubricant which keeps the engine running. Investment, brand, product, human and working capital are all crucial ingredients of one soup. None should be substituted in place of the other and business owners must work extra hard to ensure there are sufficient plans to consistently cultivate all for sustained business success.

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