Cash is to business what blood is to the body. Most businesses will die if there is no cash flow. Though most businesses start small but it is their aspiration to grow from small to medium and then large companies.
Experts say for any business to grow well, it must imbibe the following financial habits. A senior Economist with SPM Professionals Mr Paul Alaje stated some habits small businesses must have
Budgeting: “For me, the most important one is budgeting. A budget is simply an expectation for business results. Make a budget on the first day of the month to estimate how much income you will receive that month and how much you will pay out in expenses. Then review the budget compared to actual results at the end of the month. And in budgeting, you should ensure that they have budget that enables you to always have cash flow. What kills businesses is absence of cash flow. You should always budget for more than enough running cost.” Alaje said.
Savings: Also, business owners should keep certain percentage of all revenue that comes in as savings. For some it is 5% and for some it is 10%. An amount they will not touch anytime soon. Keeping ten to 20% will enable them to know if their business is fit at all.
Reduce cost: Alaje said small businesses should programme their business in such a way that they cost window is not more than 33%. Hence, they should cut down on how many people they employ, and other running cost. When cost is reduced, they can renew their rent the following year and pay salaries conveniently.
Not all revenue is profit
“Every money that comes in as revenue is not profit.” Alaje said. “Don’t assume that everything that comes into the business is profit. Neglecting this, can cause problems for your business. Declare profit only after paying off debts, all you are owing including your workers, and then pay yourself. So, pay yourself a salary. When you put yourself on salary, you pay yourself every other day you are paying other employee. When you can do all of these and more, then you are on your way to building a succesful business.”Alaje said.