Pastor Welcome Thamsanqa Mlungisi Dlalisa.
In this article we provide a few practical tips for effective financial management.
Many young people are running businesses which have great potential for growth but fail due to simple administrative things. I have personally seen thriving businesses in Tembisa and these includes businesses like car washes, hair salons, tuck-shops, internet cafés, general printing services, taverns, kota shops, mortuaries and tailoring. The reason why many of these small township businesses close within the first three years is often due to a lack of finances ,which is partly due to poor financial management, lack of prerequisite skills, lack of innovation, lack of or no business marketing, lack of work ethic and business discipline just to name a few of them.
Here are some of the basic financial management tips listed below. These tips, if observed and applied correctly, can and will impact your business positively:
* Culture of saving
Money together with skills is what drives the business. Those who have the culture of saving are more successful than those who do not have this culture. In fact, those who save first before spending have a better chance of success than those who save after spending. I always advise that people must save a portion of their earnings before they start to spend. If you spend first, you are likely going to spend all that you have and might not save at all.
* Open and run a bank account for the business
It is also very important to open a business bank account. Once this is done, you need to know that the money in your personal account belongs to you and the money in the business account belongs to the business. There must be a strong and solid line between these two monies. As a businessman / businesswomen you must never think you can just withdraw any amount you desire from your company account. That mindset kills the business. As the owner, you need to decide on a reasonable amount of money which you will draw every month as a salary. Try and stick to that amount every month. It is OK to be broke as a person and have your business account remain strong. In other words, you must not let your business suffer with you if you failed to manage your personal budget and your monthly expenses.
* Only start drawing a salary once the business starts making a profit
In the early stages of your business, only draw a stipend or nothing until the business is sustainable and can pay a salary to you and your staff. Build the business first and then the business will build you. If you have not built your business, then your business cannot build you. You must also avoid setting a high salary based on a seasonal boom. If you have multi million rand projects which make your bank account look good for that season, avoid setting your salary based on that one season. Just be realistic about it by asking you if your business will afford that salary post-project. The salary allocated must be in line with sustained financial strength of the business.
*Separate personal finances from those of the business
You must remember that your business is a person and you are also another person. You must not mix personal and business finances.
* Have monthly, quarterly and annual budgets for the business
You need to know your cost drivers and develop a clear budget for the month, quarter and year. If you know how much it costs you to run your business in a month, then you can easily determine the budget for the quarter and for the year. Your budget will help you to plan well. Without a budget, you cannot plan. It works the same way like we run our budgets for the house. Without the budget it affects you in the same if not more severely as you will experience it in your own house.
* Keep proper records on income and expenditure
Because you will need to develop financial statements, keeping of financial records is vital. You must keep all the slips for the expenses. Without those slips, you cannot account for or explain what you did with the money. The financial records helps you to see the financial health of your business. You can diagnose the problem and prescribe remedies on how to fix or turn your business around if there are signs of ailments or distress. Records help you to do that.
Other important financial tips are as follows:
* Only appoint the services of an accountant and other professionals once the business can afford it.
* Process all business payments using the banking account of the business so that there is audit trail on expenses.
* Refrain from extravagant spending or purchasing expansive vehicles for showing off.
* Use ordinary facilities for your offices and avoid hiring costly offices in the beginning.
* Spend more of your money on appreciating assets, like land which goes up in value.
* Keep minimum amounts in cash for your cash flow and bank bulk of your money to avoid being robbed.
* Try to collect all your money early and pay your creditors late.
* Avoid workingthe business via credit card or loan as this attracts high interests on loans.
* Try to make investments and savings even if in small amounts.
* Manage the handling of cash personally where possible, unless you have a trustworthy person to do such.
The above points will help in setting up basic financial management controls. If the money is used carefully and managed correctly, the business is likely to survive. It is also important to identify a mentor to provide business and financial management support. Once the business is fully functional, it will become important to hire accounting firm to assist in formalizing financial reporting. This must be kept to minimum and an option is to pull that expertise on retainer and not hire full-time personnel.
For more information call Pastor WTM Dlalisa on 083 395 1165.