Running a successful business, especially when aiming to scale, requires a diverse skill set such as financial management, sales and marketing, customer services, communication and negotiation, networking, leadership and many others as a business owner.
Yeah, I know we see these things even by simply searching on any search engine, however sometimes its just a lot to consume and digest, sometimes due to a lot of technical jargons and buzz words that may be included in some of the write-ups and you’re like, naaa… This isn’t for me I just want to run a small business on the sides.
Well-well, I am here to try to simplify some of these technical jargon in relatable ways that can help you do better as a businessperson
Let’s dive right into it.
Financial Management
Financial management basically speaks to understanding the flow of money around your business, it is a cycle to incorporates your expectation of your business (budgeting), making informed decision (based on your financial analysis) and then ensuring you don’t run out of funds in your business (cash flow management).
I understand you have injected some monies (capital) you have either saved up, collected from your family and friends (equity) or even borrowed from the bank (Debt) into your business and you have started producing or procuring depending on the form of business you’re running, but do you have expectations as to what you’re expecting to earn as return on these funds you have “invested” in your business. This expectation is called your budget.
Before we go too far into this conversation, I want to believe that your business has a name, vision, mission, goals and objectives or you’re just coasting along because everybody is now an entrepreneur on social media. Anyways that is conversation for another day if you don’t already have those in place. So, on the assumption that you’re a prim and proper entrepreneur let’s get back to our conversation.
Budget/Budgeting
This is a mindset about your business in terms of your expected sales revenue, expenses, and your net assets written down in clear terms.
So, when you started your business you told your self that Elon musk will be learning where your business is in the future (vision) and then you also said to your self that you will solve xxx problem using xxx tools and leveraging technology (mission) then you also the say to your self how much will my business need to be able to displace SpaceX (goal), then you begin to break it down into medium term and long term objectives. Budgeting is that process of putting numbers to your vision, mission, goals and objectives to make them smart (Specific, Measurable, achievable, realistic and Time-Bound).
There are different types of budgets, but I am not sent to complicate this writeup. So as basics, make projections based on your type of business on the following key parameters:
How much do you want to spend on your business (cost of sales and expenses)
How much do you want to earn given how much you spent (sales margin can be a percentage above your cost)
How much money do you want to retain in your business
What do you want the value of your business to be in the medium term
How many customers or what type of customers do you need to attract to meet these objectives
Please note, as soon as you’re thinking about these things, be sure to begin to write it down. There’s a reason the scripture says write down the vision, make it plain.
After you have set your budget, you then start to do activities in your business tailored toward achieving your budget. There’s a consciousness that comes with writing down your budget, it literally guides your decision making and it helps you see and take opportunities that would have gone past if you weren’t pursing a goal.
Making Informed Decisions
What would you define decisions as? I personally describe decision as the process of choosing between two or more alternatives based on your judgement and reasoning and ultimately choosing one of the available options. And remember, your decisions cannot be better than the level of your reasoning.
This leads me to informed decision. The difference between just a decision and informed decision is “INFORMATION”. An informed decision is that choice made based on a thorough understanding of the relevant information, options, and consequences associated with that choice. It involves gathering and analysing data, considering all available alternatives, and evaluating the potential outcomes to make a well-reasoned conclusion.
To be able to make an informed decision you need to make proper research which will help you understand the options at hand and their implications, evaluate the outcomes. Also, you can make consultations from those who are more conversant with the field in which you’re making the decision.
You need to also understand the potential short-term and long term effects of the decision for instance an option that may appear cheaper on the short term may not actually be cheaper on the long-run maybe due to high maintenance cost that may come with the option, so as a business owner looking to scale you must be willing to see things on a more global perspective.
Risk is another factor to put into consideration when making an informed decision, the fact that you are conscious/aware of the risk attached to your alternative course of action already puts you one step ahead of a person who is not aware because you are able to proactively find ways of mitigating the risk from crystallizing. It helps you take decisions such as insuring your logistics bike against theft or accident- transferring the risk to an insurance company if the risk ever crystallizes. There are other risk management strategies that we will unpack fully in other episodes.
There are decisions that are critical to your business. Decisions such as pricing strategies, expenditures, capital structure (should you get more loans to finance your business of approach your close circles -equity), marketing strategy, investment decisions etc. All these daily decisions culminate to determine if you’re set to scale your business to run SpaceX out of the market.
Never Run Out Of Funds
Is your first thought how to buy that nice aso-ebi from your friend when you make your first groundbreaking sales, or to pay back the loan you’re owing? Well, there’s no wrong answers it is your perspective that matters. Managing Cash Flows simply means keeping track of cash inflows and outflows to ensure that your business has adequate liquidity to operate smoothly. Because of timing of cashflows, you need to know when to make payment for some of your credit purchases and how to pursue after your debtors. Ensure that if you sell on credit, you can receive your money, trustworthiness on your part and with your customers is an essential tool in managing cash flows.
I’m sure you just asked yourself “should businesses really sell on credit?” I will address this in subsequent episodes.
Thank you for reading to the end, let me know your thoughts in the comment section.
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