“Entrepreneurs forget that business success is measured by the financial success of the business not by the passion,” said Precious Mvulane, GAD Consulting Services managing director and author of The Essential Finance Handbook, in an article for SME South Africa.
Here is some advice to help you keep an eye on your finances while still following your passion.
LESSON 1: It’s possible to do good and to do well
Charmaine Padayachy, principal of investments at Omidyar Network on the role organisations such as Omidyar Network play in helping Africa realise its entrepreneurial potential. Described as a “philanthropic investment firm,”Omidyar Network is a private equity and venture capital firm that invests in both profit and non-profit organisations and was established by the founder of online auction giant eBay, Pierre Omidyar and his wife Pam in 2004.
“As an impact investor, we seek both positive social and financial returns. Our ability to both invest and make grants gives us the flexibility to support the best organizations for helping sectors scale, whether they are for-profit or nonprofit.
We believe that accelerating the development of an entire sector can impact many more people than any single firm can reach. That is why our investments are focused on five key sectors that are crucial building blocks of stable and open societies: Consumer Internet & Mobile, Education, Financial Inclusion, Governance & Citizen Engagement and Property Rights.
However, most important for the African context, is that we are committed to the hard and uncertain work of sparking and nurturing innovations at the very early stage. We build long-term relationships with entrepreneurs through patient capital, because we understand that solving the world’s most complex problems takes time and that building an impactful business is a journey.” Read more
LESSON 2: You can start a business with limited funds
With R1000, you might also look for ‘soft targets’ says Tshepo Phakathi, an economist, banker, Group CEO of Phakathi Holdings and founder of Kaello business incubator.
“Multilevel marketing opportunities reselling well-known cosmetics or plasticware, for example, tend to offer good margins. If you work with a small base you should be able to double your R1000 investment within days. If you keep doubling your money every few days, and keep reinvesting in your business, the model will be sustainable.” Read more
LESSON 3: Passion is not everything
Precious Mvulane, GAD Consulting Services managing director and author of The Essential Finance Handbook on some of the biggest and common financial mistakes she continues to see South African entrepreneurs make.
“Entrepreneurs forget that business success is measured by the financial success of the business not by the passion. Passion will help you wake up in the morning and sleep well at night because you are doing what you love. But it will not pay the bills.
“You need to figure out a way of converting your passion into profit. If you don’t it is just a matter of time before your business shuts down. Accept also that not everything you are passionate about can be a profitable business, especially in this economic environment.” Read more
LESSON 4: Know what investors want
Clive Butkow is a venture capitalist, director of Grovest and CEO and chief investment officer of Grotech an investment fund that is targeted at investors with an appetite for higher risk and invests in high-growth, disruptive tech companies, on what excites him the most about investing in startups.
“Success excites me – you’ve put in a lot of effort, their incredible passion and commitment and actually seeing results.There’s a very small percentage of entrepreneurs that actually succeed. [The stats say it’s about] 5%. And I like to see the guys that I work with being part of that 5%. It gives me incredible confidence in the country and the entrepreneurs to see that they can learn and they can turn an idea into a product, into a business. It’s extremely rewarding.” Read more
LESSON 5: Use financial forecasting
Phumlani Nkontwana, programme manager of Enterprise Development Academy (EDA) at GIBS Business School (Gordon Institute of Business Science) explains how financial forecasting can help SME owners to predict how changes in the micro (company) and macro environment (market, industry, legislative, etc.) will affect revenue, cost levers and ultimately the bottom line in the next financial year or season.
“Step 1: Determine the size of the pie: Get real industry and market data to understand what growth is feasible for your business. Start by understanding the size of the pie, who owns it and what piece is potentially available for you to bite. Step 2 – Use the past to predict the future: Use revenue (sales) achieved the previous year or two as a base from which to forecast. Step 3 – Go big or go bust: Determine your financial goals for your business. It all starts with what growth you want to achieve for the business.