How Not to Fail Your Dream Business – Majority of start up micro, small and medium enterprises (MSMEs) fail within the first 5 years of its existence. And the culprit is poor financial management of their dream business.
Financial management for start up businesses may not be a priority for the street-smart entrepreneurs. Most new entrepreneurs are aggressive and very creative that they spot an opportunity for their products or services. But while they may be good in terms of products and services, resourceful on how to market them, many fail due to bad handling of finances. We can conclude that sound financial management is very important for a business to succeed.
Three important things to learn in Financial Management:
First and probably the most important aspect of financial management is the ability to PLAN. How many of the business owners know how to budget. Maybe the budget that they know is controlling the expenses but budgeting is not simply referring to that. Budgeting also requires knowing when your revenues are coming and matching it with the planned expenses. If the equation (Revenue less Expenses) results to a profit, maybe it is good. But what if the reverse happens? Expenses are greater than Revenues? Then one has to go back to the drawing board and find out how to increase Sales.
Second that must be learned is the BANKING RELATIONSHIP. While new entrepreneurs rely on their own savings, pooling family investments or allocating interest free funds (either as pension or separation benefits), time will come they cannot do away dealing with banks to get the necessary funds for their operations. An entrepreneur should build necessary relationship needed to avail of the services of the bank. And know what kind of money they can get from banks.
Third is BEHAVIORAL FINANCE. This refers to the change in attitude on how we look at money. One common practice is to co-mingle personal funds with business fund or using profits for personal gains (going on spending spree with the family). This is bad for the business in the long run. It is for the good interest for the business that the profits be ploughed back to operations.
Entrepreneurs should understand there’s no business success without sound financial management.