The first few years for any new business are crucial to its long-term growth and success. Sound financial management is and should be at the heart of every business irrespective of business scale (large, medium, or small).
Many Start-up businesses collapse within 3-5years of trading. This is sometimes not as a result of lack of customers or poor service/product but as a result of improper financial record keeping and monitoring.
In a Ghana Talks Business interview with Nana Yaa, CEO of Medoba she outlined sound and practical financial management systems you can adopt as an entrepreneur to help grow and sustain your start-up venture.
Financial Management tip #1- Lower your standard of living
Entrepreneurs must understand that their start-up or small business venture will require all the necessary funding needed for growth and sustenance. To do that, entrepreneurs would have to do away with any form of financial frivolity to achieve their goals. Cut down your personal spending and channel available resources into the business.
Financial Management tip #2 – Keep records
Keeping records of your expenditure and revenue will help you determine your profit and loss as well as make a sound financial decision as to how much to reinvest in the business, how much to save, how much to pay your workers among others. There are a number of good accounting software that can aid you in developing financial reports to help you make sound financial decisions. Alternatively, you can hire a professional accountant but that comes with charges.
Financial Management tip #3 – Invest Idle funds
Your business needs to make the optimum use of profits and savings. Do not just save your money in the bank, invest a part of it to earn returns and increase your business yield year after year. This will build peace of mind and stability for your business.
Financial Management #4 – Determine the state of your business
According to Nana Yaa, most people are unable to differentiate revenue from sales as well as profits. These 3 important financial elements are crucial to understand and determine the state of your business.
According to Investopedia, revenue “is the total income generated by the sale of goods or services related to the company’s core operations” while sales “are the proceeds a company generates from selling goods or services to its customers.” That is, while sales are solely focused on the income generated from selling a product or service to a customer, revenue focuses on sales of goods and services as well as other income-generating sources.
Profit “is the amount of income that remains after accounting for all expenses, debts, additional income streams, and operating costs.”