The ability to master a business’ finances is critical part of running any successful enterprise, however, for many entrepreneurs this aspect of running a business can be the most daunting.
However, mastering certain practices can help you develop and hone a few key financial habits that will ultimately help you and your business avoid becoming a part of the startup failure statistic.
Here 5 crucial non-financial habits you need to master in 2017 and the 5 financial habits they can help you nurture.
1. BEGINNING WITH THE END IN MIND
Having a clear picture of the outcome you desire before you take the first step can save you from immense heartache and cash losses further along the road.
Make sure you have a personal mission statement before you try to define one for your new business, says Martin Zwilling, founder and CEO of Startup Professionals, a company that provides services to startup founders around the world, in an interview with Fortune Magazine.
“Business owners need to remember that they won’t be effective centering their life around someone else’s definition of success, satisfaction, and happiness, instead, they should find their own success model,” he says.
This helps with: Financial goal-setting
Setting financial goals is often seen as the crucial first step because it gives the business a clear direction and course of action.
It’s important that business owners set goals that are “specific, measurable, realistic and actionable” says Precious Mvulane, a certified charted accountant and founder and managing director of GAD Consulting Services, an accounting and financial services consulting firm and the author of The Essential Finance Handbook for Business Owner – 7 Basic steps to manage your business’ financial performance.
“Not only so you know where you are headed, but also so you know when you get there,” she says. Read: Financial literacy 101 for SME owners
Self-discipline is one of the most important attributes we can develop, writes Richard Koch, author of The 80/20 Principle.
Self-discipline lies at the centre of most accomplishments.
“It is one of the 20 (or 1) percent of skills that contribute 80 percent of results. The 80/20 principle is all about getting results with the minimum possible effort. When it comes to self-discipline, the critical thing is to develop habits. Habits stick,” says Koch in a personal blog post.
This helps with: Keeping your finances up to date
Finances are a crucial part of most business’ interactions with investors, suppliers and other service providers such as banks. Make sure [your finances] are all up-to-date and readily available, says Morne Cronje, Head of FNB Franchise.
“Financial management is crucial and the owners need to be able to manage their finances efficiently in terms of loan repayments and cash flow management which can contribute to the success of their businesses,” he says. Read: 5 financial management rules franchisees should live by
3. BEING FUTURE-FOCUSED
For future-focused people, long-range goals fuel today’s decisions and actions says Derek Sivers, founder and former president of CD Baby, an online CD store for independent musicians.
“This keeps them ambitiously working, saving, and planning for a better life. Self-discipline and the ability to delay gratification are key. So the ability to delay gratification is one of the best indicators of future success.”
FIND: Personal Tax Service
This helps with: Financial forecasting
Phumlani Nkontwana, programme manager of Enterprise Development Academy (EDA) at GIBS Business School (Gordon Institute of Business Science) says financial forecasting can help SME owners 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.
Although this might seem difficult for budding entrepreneurs, Nkontwana lays out a few steps you should take to produce your own financial forecast:
“Step one, 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.
4. SMARTER PLANNING
“I believe in working smart,” says Yaron Assabi, founder, and CEO of Digital Solutions Group, digital marketing company.
Smarter planning entails organising tasks and schedules in way that optimises output and helps you accomplish more on a daily basis.
“I make sure that I plan for my day the day before so that when I get to the office I am well prepared for my meetings and I already know what I would like to achieve from them.
This helps with: Planning for a rainy day
Almost every business, including the best-run, will have occasional months where they experience an unexpected gap between the money they need to pay their bills and the money that comes into their bank accounts, says Anton van Heerden, executive vice-president, Africa & Middle East at Sage, the accounting and payroll software company.
“Unforeseen events such as productivity lost because of strikes and power outages, expensive machines that break, or a big customer missing a payment date can cause a temporary cash crunch for healthy business.
Van Heerden shares a few tips on ways to handle the situation:
“Even if your business is doing well, set up a line of credit for your business to bridge any future cash shortfalls. For example, an overdraft can keep your business running smoothly if your customer is five days late with the payment for the month. Look at your most important invoices and settle them first. SARS should be first on your list because the taxman won’t wait for payment. Your payroll and your critical suppliers should be next.”
“Get on the phone to any customers whose accounts are overdue. If they have exceeded 60 or 90 days, you might offer them a discount to settle quickly.
Be proactive and speak to any creditors you can’t pay on time – they’ll be more understanding if you keep them up to date with your situation. If you have old inventory that is losing value (for example, food products with a looming sell-by date or computer equipment), consider selling it at a discount. It might be worth absorbing the loss to make critical payments on time.
5. LEVERAGING ROUTINES
Consistency is a trait many successful entrepreneurs share and it is not surprising to see why. Having a routine can have an enormous effect on your productivity and overall performance, and finding a routine that works for you can be key to finding success.
“I was an avid bodybuilder back in my college days, and to succeed you had to be religiously consistent day after day with diet, nutrition, and training. I applied the same in business,” says Payman Taei, CEO and founder of Visme, a DIY online tool that helps businesses and nonprofits to create better presentations and infographics, in an Inc article.
“It takes time to create great products and a stable business, so I’ve learned that to succeed you have to remain consistent, especially when you truly believe in something. It’s a two-edged sword that if not managed can also have negative ramifications, so I also try to be proactive to know when to change angles when the need arises.”
This helps with: Keeping an eye on costs
Every business has money wasters they should always try to avoid. Ncamisile Maphumulo, founder of the Coastal Nephrology Centre suggests entrepreneurs should avoid wasting money by paying for things they can do themselves. She says despite your good intentions, everytime you spend money it must make economic sense.
“When your business cannot afford it, you pull up your sleeves and do it yourself,” she says.
Maphumulo also advices business owners to go easy on the cash withdrawals, particularly if it comes from the business account. “I used to do a lot of withdrawals, then come month end I couldn’t pinpoint exactly what that money was for. Every cent should be accounted for,” she says.