ACCOUNTS
An entrepreneur’s journey is a unique one. There are days when you wake up and think…”what possessed me to leave relatively “safe” employment,” but nothing beats bringing a dream to reality.
What seemed like a perfect plan that could absolutely not go wrong, goes through twists and turns, then becomes refined by the fiery furnace of challenges and failures, and then just when you think you have perfected your model, a regulation, a recession, an unexpected event places your perfect plan on its head! That’s where the best learning comes; about people, processes, products, promotions etc. What works and what doesn’t.
But in spite of it all,
there is a magic in presenting something novel, that solves a problem, has an impact and touches lives…the infinite possibilities of entrepreneurship.
I have observed some outstanding entrepreneurs and have also gained some experience as one; from this I am delighted to present you with my GLOSSARY of some of the key issues an entrepreneur must deal with to survive for the long haul.
Speak to a book-keeper or an accountant as early as possible to put basic systems in place. They will also advise you on your routine financial obligations such as VAT, Withholding tax etc. Many entrepreneurs neglect this important area to their detriment. If numbers aren’t your strong point, invest time in some formal instruction to equip you with basic knowledge. Enroll on a Financial Management for Business Owners Seminar. Don’t lose sight of this important piece.
B: YOUR BUSINESS PLAN IS YOUR ROADMAP
Planning is key if you wish to achieve success in anything that you do. Your business plan is your road map; imagine embarking on a journey to an unknown destination without a map or GPS; sure, you might eventually get there but not without getting lost along the way, going in the wrong direction, and losing time having to retrace your steps. So many entrepreneurs get carried away with their idea, passion and optimism and plunge into the arena without a formal plan. This can be a costly mistake.
A business plan articulates your business goals, the strategies required to meet them, the challenges you may encounter and ways to mitigate them. It includes the ideal structure of your business, clarifying roles and responsibilities, and the capital required to fund it. Putting ideas and concepts down on paper is invaluable. Going through the rigour of researching and compiling data deepens your understanding of your business.
The value of a business plan cannot be overstated. Indeed, it should be a reference point to return to periodically. A good business plan should be flexible
enough to allow for modifications with the vagaries of your market environment.
Revisit it, review it, and update it.
enough to allow for modifications with the vagaries of your market environment.
Revisit it, review it, and update it.
Cash flow is king.
Cash is the fuel that drives a business, and many financial experts consider the condition of a company’s cashflow to be one of the most important indicators of it’s financial health. Indeed inadequate cashflow
is often cited as the top cause of failure. Statistics indicate, that at least half of all new businesses fail within the first five years. This is not for the lack
of great ideas and commitment; it is typically from weak cash flow management.
is often cited as the top cause of failure. Statistics indicate, that at least half of all new businesses fail within the first five years. This is not for the lack
of great ideas and commitment; it is typically from weak cash flow management.
Many entrepreneurs don’t dedicate time to pour over accounts payable, receivables and cashflow, and this important part of the business is often neglected or overlooked. Remove some of the burden by working regularly with an accounting professional but still stay close to the numbers.
EBITDA – Earnings Before Interest, Taxes, Depreciation, and Amortization. It is a measure of cash flow calculated as: Revenue – Expenses (excluding tax, interest, depreciation, and amortization).
Low sales, overspending, weak invoicing and follow up on receivables, excess stock, are some of the common causes of cash flow problems.
Many businesses struggle due to insufficient capital, weak cash flow management and too much debt. How much you borrow and when, can mean the difference between success and failure. Tackle debt problems head on. Here are some suggestions:
CUT COSTS
Try to reduce costs. Revisit your budget; do your revenues cover your fixed costs such as salaries and utility bills? Can you sublet space? Can you sell idle assets? Be realistic; you may need to let some people go.
Try to reduce costs. Revisit your budget; do your revenues cover your fixed costs such as salaries and utility bills? Can you sublet space? Can you sell idle assets? Be realistic; you may need to let some people go.
APPROACH YOUR LENDERS
Be proactive about negotiating with your creditors before you are in default, whether it is debt from friends and family or from financial institutions. Timing is important. Remember it is in everyone’s interest to find a solution; restate your intention to meet your obligations and they may be able to restructure your repayment options or even accept a lower settlement.
Be proactive about negotiating with your creditors before you are in default, whether it is debt from friends and family or from financial institutions. Timing is important. Remember it is in everyone’s interest to find a solution; restate your intention to meet your obligations and they may be able to restructure your repayment options or even accept a lower settlement.
PRIORITIZE DEBT PAYMENTS
What is your most expensive debt? If you have borrowed in foreign exchange and are earning in Naira this must be a priority. In any case make every effort to reduce the most expensive debt.
What is your most expensive debt? If you have borrowed in foreign exchange and are earning in Naira this must be a priority. In any case make every effort to reduce the most expensive debt.
Most businesses will borrow at some point to improve cash flow or to finance expansion. Be careful not to overextend by borrowing too much without the capacity to repay.
E: Are you a dreamer or a doer?
Having an idea is fine, but without a plan to bring it to bear, it is worthless.The truth is, most ideas never make it to reality. Many managers are comfortable with endless planning, but lack the discipline, commitment and focus to actually put the plan into action. Here are some tips:
SET CLEAR GOALS
Setting clear goals is one of the most important requirements for execution. As always the goals should follow the SMART criteria: specific, measurable,
attainable, realistic and time-bound. Goals need deadlines and measurable outcomes or execution just won’t happen.
Setting clear goals is one of the most important requirements for execution. As always the goals should follow the SMART criteria: specific, measurable,
attainable, realistic and time-bound. Goals need deadlines and measurable outcomes or execution just won’t happen.
YOUR BUSINESS PLAN IS YOUR ROAD MAP
After specifying goals in your strategic business plan, don’t abandon the document on the shelf after the planning process is complete. The document is there to guide you; it’s your road map.
After specifying goals in your strategic business plan, don’t abandon the document on the shelf after the planning process is complete. The document is there to guide you; it’s your road map.
CONTINUOUS COMMUNICATION
Get everyone involved so they take ownership and have a stake in its successful execution. Maintaining clear communication before, during and after the process is essential to ensure that everyone is on the same page. Without this, a team will lose site of goals and objectives and veer off course. Silos are the enemy of execution; collaboration strengthens it.
Get everyone involved so they take ownership and have a stake in its successful execution. Maintaining clear communication before, during and after the process is essential to ensure that everyone is on the same page. Without this, a team will lose site of goals and objectives and veer off course. Silos are the enemy of execution; collaboration strengthens it.
MONITOR AND MEASURE PROGRESS
There should be a periodic review of the strategic plan and an evaluation of progress. Evaluate what’s working and what’s not so adjustments can be made to put you back on track.
There should be a periodic review of the strategic plan and an evaluation of progress. Evaluate what’s working and what’s not so adjustments can be made to put you back on track.
F
What determines the survival of a business and where it will be in 6, 12 months or more is the funding and capital supporting it. Can you pay your bills, salaries, utilities, suppliers and keep operations going? A critical step on the road to business success is figuring out where the money will come from to fund it.
The best place to start is to look inwards. Do you have any savings and investments? This is a most common form of financing used by most startups. When you approach lenders or investors they usually want to know if you have any skin in the game; after all, if you aren’t prepared to risk your own money in your business (if you have some), why should anyone else risk theirs.
Do an inventory of your assets. You probably have more than you think. Assets include bank accounts, stocks, bonds, mutual funds, property, vehicles, etc. You may decide to sell some assets for cash or to use as collateral for a loan.
Friends and Family are usually easier to persuade than a bank. But remember that borrowing from friends and family comes with a whole set of risks. If the venture fails, or it takes you longer than anticipated to repay the loan, relationships can suffer.
Money can really complicate family relationships so do make sure that you have a formal agreement. This should include how much is to be borrowed, the amount of interest charged, and repayment terms.
There is a range of options to support funding needs including banks, small business loans, government grants, philanthropists, crowdfunding, angel investors, and venture capital.
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