Dear Young Entrepreneur, where does your money go? A lot of people speak very persuasively about the lofty plans they have for their various businesses but their bank statements say otherwise.
Did you know that your spending habit can determine the lifespan and scalability of your business?
If you are unable for instance to prioritize your spending or to stick to a budget, it would be difficult for you to plan your company’s finances; as you may find yourself spending impulsively as you do with your personal finances.
Running a business requires you to be committed to your recurring expenses such as staff salaries, office rent, loan repayments, and invoices from suppliers. Ensuring all of these are sorted out in due time requires discipline and focus.
Here are some practical ways you can cultivate good spending habits as an entrepreneur:
- Budget: Yes! This is the biggest cliché in the finance world but it has become a cliché because it is important and useful. A budget not only helps you manage your finances, it also helps you prioritize and plan ahead. Having a monthly budget for your business is important if you do not want to owe your staff salaries or end up closing shop due to cash flow problems.
- Cut Cost: Having enough money flowing into your business to cover all your expenses does not mean you have to spend it all. No matter how profitable your business is, always find areas where you can save money. For instance; do you really need your own office space? Shared office spaces where you can simply get yourself a workstation and pay monthly, are becoming very popular in major cities across Nigeria. Why not explore this option instead of renting a fancy office with your first big cheque?
Look through all your processes and find areas you can cut cost.
- Focus on Profitability: A lot of small businesses fall for the “We are giving you a platform” or “We are increasing your visibility” trick. If a contract or opportunity is not profitable do not accept the offer. There are occasions where you may take a haircut to position yourself for future opportunities or gain access to potential clients but at the very least make sure you are breaking even and not making a complete loss. Making a loss on a project means you are subsidizing with money meant for something else, this would distort your plans for the period if you have followed point number one and actually developed a budget.
- Review Your Books: Do not wait till the end of the month, quarter or year to review your books. Ensure you do this at regular intervals so you can quickly identify potential gaps before they become urgent. For instance if you review your books on the 15th day of the month and realise clients are still owing you from the previous month, then you already know your staff’s salary due on the 30th is at risk. That gives you 15 days to follow up on your clients, rather than waiting till the end of the month to review your books only to realize you cannot pay your staff.
Don’t give up if your spending habits so far are not encouraging, like every other habit they can be replaced by better ones if you are determined and remain focused.