Staying on top of your business finances

It is undeniable that motivation for start-ups is as a result of an idea or skills an entrepreneur have to create a product or provide a service. However, managing finances can be daunting for any small business owner. It cannot be emphasized enough that, properly managed finances stabilizes the business and minimizes chances of failure. It is important for entrepreneurs to educate themselves and understand the basic skills needed to run a business. Being organized is a key component of sound financial management.

Ms Fulufhelani Mashapha was a guest speaker for the 4IR Aquatech Accelerator Financial Masterclass. Ms Mashapha is a financial specialist, an entrepreneur and a YouTube content creator on financial issues. The objective of the session was to impart knowledge and empower entrepreneurs with the Do’s and Don’ts of business finances, in particular – finance management for start-ups.

Did you know that there are two options when launching a business? Firstly, an entrepreneur may choose to launch a business without any funding, but their own capital. It has also been found that 99% of start-ups have no financial assistance. Hence, often a start-up may not be successful. The second option is for a founder to search for funding, of which there are six types to choose from.

Funding can be from:

  • Government grants,
  • Equity funds,
  • Loan financing,
  • Angel investment,
  • Venture capital funding, and
  • Personal debt loan

It is key for a small business owner to think hard about how they want to finance their business. More so, given that there are other people that may be affected by the financial decision taken.

Whether a business has launched with or without financial back-up, mistakes are inevitable with any start-ups. Therefore, it’s advisable for entrepreneurs to be aware and informed of avoidable mistakes. Consult your business coach before making a financial commitment.

  1. Common financial mistakes include lack of financial planning: as a start-up owner you need to project the cash flow and stick to the budget.
  2. Lack of expense monitoring mechanism: being unable to keep track of activities where the money goes can lead to business running out of finances. The best way to avoid this is to have a spreadsheet to capture expenditure and keep track of business finances.
  3. Expanding too quickly is another mistake to avoid. Rushing a business to grow while it is not ready, based on premature outcomes of the business performance. For example, your business may have performed very well after launching and as a result, the owner decides to hire more people or open another branch without knowing that business may be slow in months to come. Moreover, expansion is costly.
  4. Acquiring too much debt should be avoided at all costs, whether for business or through a personal loan by the owner. Business owners should first consider growing and nurturing the business using own financial resource. It’s important to start with what you have, avoid renting out office space and operate from your place to cut costs.

Owning a business comes with great responsibility, hence reinvesting back into the business will contribute to its sustainability. One should refrain from spending money as soon as you breakeven or make profit. You should consider ways to diversify your income stream, you don’t want to be a business that has one stream of income. It’s important to be able to mitigate potential risks through diversification.

Entrepreneurs could diversify by advertising their services on multiple platforms, open an online store or register a second business whose service compliments the other. One may even offer online tutorials charged at a base subscription fee. Other ideas include expansion of your product range, like adding other make-up line in a case of cosmetics. You also consider doing marketing or offering your service to other companies.

Can you imagine your business closing down or being stagnant purely because you can’t cover your expenses? This can easily happen due to under or over pricing your products or services. To avoid selling yourself short, you need to do comprehensive research about your business offering. Benchmark it against the market and price it having your target market in mind.

Another point to consider is keeping personal assets separate from business assets. Even in most cases one uses their personal funds to support business, it is crucial to keep separate records of the two in independent spreadsheets.

Another mistakes is unnecessary purchases and this is common especially at inception stage. It is tempting to want to position your business at a level of businesses that have been running for longer, but that should be avoided at all costs. You don’t need to have everything when you start, you certainly don’t need an expensive logo, equipment or office space that will cost you a lot. Those things can always be changed in future. That money can be allocated to other business needs.

Not having emergency funds for your business will cost you dearly. Example, what will happen in a case where your computers crash or when you lose a critical staff member, how are you going to replace them without acquiring/incurring debt? You need to keep money you can rely on in case of emergencies. In addition, you need business insurance once you are operational. There a lot of service providers that can tailor make your insurance based on your business needs. Insurance offers you peace of mind.

South Africa like any country has laws that every citizen and business should abide by and as a business owner, you need to avoid tax evasion and pay tax. Every business should pay tax once its returns are above R335 000.

It advisable to think about how you are going to strategically position your business to get more returns using the same resources. For example, think about how you can take advantage of re-positioning your business for online market. Even though there are lot of mistakes that can lead a start-up to incurring financial loss, there are strategies that can be adopted.

How prepared are you to survive crisis and unforeseen circumstances? It’s important to diversify your income stream and increase your business survival rate. Constantly think how you can acquire new clients and what skills you have that will aid your survival and generate more income.

Minimize your expenses and grow your disposable cash. This can be achieved by closely monitoring your expenses. You could also reduce your office rental expenditure by downsizing to smaller offices or even operate from home. Reduce debt as possible as you can, minimize the amounts on loans and reinvest profit back into business. Know your expenses, restructure them so you can be able to repay your debts quicker and create a healthy credit profile.

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