Every small business owner works for the growth of his or her venture. However, this cannot be achieved without scrupulous financial management, Okechukwu Nnodim writes
Financial management consultants and small business analysts say no venture can grow as expected without proper accounting of its finances. It is common knowledge that the wrong usage of money, especially when running a small business, often leads to regrets. It is therefore, important that you manage your cash flow wisely considering the harsh economic realities of the present time. Experts say two of the most important aspects of owning a small business are to keep personal spending and business spending separate. They note that the life-line of your business is a healthy cash flow.
To avoid making money management errors as an entrepreneur, you should always try to stretch the business's available capital for as long as possible before the injection of additional capital is necessary. Speaking on money management guidelines for small businesses, a business analyst, entrepreneur and consultant, who is also the Chief Executive, Solomon Hunt Limited, Mr. Tobenna Okoli, says “We need to categorise money management into costs and income. On the cost side, there is a rule of thumb not to buy that which you can lease. Do not lease what you can borrow. And do not borrow what you can manage to do without.
“But, financial prudence notwithstanding, spending is a necessity. Business managers who choose to under-spend in key areas are shooting themselves in the foot. The key is for value to exceed expenditure.” As an instance, experts say spending on marketing and advertisement, if well done, is very critical to attracting business prospects. A business that does not spend on getting the best hands, for example, will not go far. On the income side, revenue generation must be sustainable. This can be achieved by engaging in businesses to generate repeat patronage from customers. “It can also be achieved by engaging in scalable businesses,” says Okoli. He adds, “Scalability simply means the ability to serve a wider market with only marginal increase in costs. This is typical of service based industries like ICT and media. Overall, entrepreneurs need an above-average understanding of accounting especially cash flow, costs assessment, depreciation and taxation.”
Below are common money management errors to avoid as a small business owner, according to experts:
Checking profit only at year end
Experts say many business owners wait until the end of the year to find out whether they are making money. They note that small businesses shouldn't be run as such. According to professionals, waiting until the end of the year is not good enough. Fixing problems at the end of the year is simply the wrong way of running a small business, adding that instead, problems need to be addressed along the way. When this is adequately followed, by the end of the year, the entrepreneur need not worry on whether the business made money, lost it or broke even. Experts say liquidity is important to maintain the day-to-day operations of a business. Your employees need to be paid, you need to pay yourself, and new stock needs to be ordered, but without liquidity it will be a tough stretch for your business.
Failing to pay yourself
As an entrepreneur you should learn to pay yourself as you run your business. According to experts, often small business owners forget to pay themselves first. They note that the first basic aspect in business is the ability to pay yourself first. You must learn to reward your efforts and should include a reasonable living wage for yourself in business and cash-flow planning. Planning ahead is essential, and if you go into a personal cash-flow crisis and need to pull cash out of the business, you've also created a business cash-flow crisis for yourself when you fail to pay yourself. That is why you need to plan accordingly so that you are ready at the time of crisis as you manage your venture.
Credit mismanagement
As an entrepreneur in the small business category, you need to prearrange credit through financial institutions before you need it. You have to be proactive in the management of credit in business. If your cash flow is tight and you are experiencing challenges, it will be more difficult for you to get credit from financial institutions when you need it the most. For individuals who use credit to defer cash outflow, you must ensure that you pay back before high interest rates kick in. It is also advisable not to make personal purchases with your business credit. Keep business and personal expenses separate or you will end up in serious debt.
Employing defective tracking system
Experts advise that you use special accounting software and online interactive tools that can help in cash-flow tracking and forecasting .i.e., using tools that can help you know what is likely to happen to your business in a day, month or year. You must ensure you track your accounting system regularly and by using the right software you can achieve this without must stress. This will help boost your productivity and give your business the right edge.
Ignoring bills
Experts say just as much as you enjoy getting paid on time, so does owners of other businesses. It is therefore wise to pay your taxes, suppliers, utilities and other bills on time to avoid interest charges and a bad reputation in the industry. Every supplier has its terms. Some may give you 15 days, others seven, while a few may not allow you to exceed the date of agreement. You can use online programmes to keep tabs on the due dates or possibly even setup pending payments in order not to default.
