The make or break point for entrepreneurs is in how they handle money in business. And while many will take varying financial steps, there are prerequisite ways of handling money that the most successful entrepreneurs follow to ensure that their businesses maintain a profitable growth trajectory. Let us take a look at some of them:
Over-extension and Over-expansion: This has been the bane of crumbling big businesses in Kenya. For instance, Kenya Airways and Uchumi have previously fallen victim to over-expansion. Recently, troubled giant retailer Nakumatt has shut down some of its branches that had been set up in an ambitious expansion drive. And while expansion is an indicator of a growing business, it is not always the finest strategy, especially for younger businesses. According to Warren Buffett, the world’s second richest person, over-extending yourself in business is an error that will leave your financial position in ruins. This means that even as you plough your money into the business, you must never over-do it. “The difference between successful people and really successful people is that really successful people say no to almost everything,” he said during his business empire, Berkshire Hathway’s shareholders meeting early this year. His firm has over 360,000 employees!
Loans in business: Loans can fuel or stall your business. To get it right, says Florence Nyokabi, the Standard Chartered bank head of Human Resource in Kenya, Uganda and Tanzania, begin by building a financial knowledge base to guide you in either applying or utilizing a loan. “Stay abreast with trends and current issues affecting the economy to enable you to forecast changes that may impact your specific sectors of interest,” she says. She adds that you will also do well to leverage on social networks such as ‘Chama’ that will enable you to access larger, cheaper pool of funds.
Ignoring the balance sheet: Do you know the amount of money your business is actually making? What about the cost of running it? Well, the quickest way for your business to go down is for you to forsake the balance sheet. According to Jaime Tardy, the author of The Eventual Millionaire who has interviewed over 150 world millionaires, you must always know the status of your balance sheet. “If you don’t have the facts about your financial situation, money will stream through your hands like water,” he says. Always bear in mind that your enterprise’s primary business is to make you money! If it doesn’t meet this objective over-time, cut your losses and move on to more rewarding ventures. Additionally, according to Shark Tank’s billionaire investor Kevin O’Leary, by being unaware of the money coming in and money going out, your business will always cough out more money than it makes.
Below what the business makes: You don’t always have to spend on it just because your business can afford it. For instance, some of the top billionaires in the world are known to live way below their worth. For instance, top world billionaires like Buffett and Carlos Slim are not known for their spendthrift on extravagant luxuries such as flashy cars and planes. They’ve lived in the houses they bought when they started off for decades. According to financial journal Forbes, instead of over the top spending, such billionaires are busy figuring out how to save and invest more.