4 financial habits for building your business

Cash is to business what blood is to the body. Most businesses will die if there is no cash flow. Although most businesses start small, their aspiration is to grow from small to medium and then to large companies.

A business expert and senior economist with SPM Professionals, Mr. Paul Alaje, is of the view that for any business to grow well, it must imbibe the following financial habits. He explains further:

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 you have a 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.

Savings: Also, business owners should keep certain a percentage of all revenue that comes in as savings. For some, it is five per cent and for some it is 10 per cent; an amount they will not touch anytime soon. Keeping 10 to 20 per cent will enable them know if their business is fit at all.

Reduce cost: Alaje said startups should programme their businesses in such a way that the cost window is not more than 33 per cent, and that they should cut down on how many people they employ and the running cost. When cost is reduced, they can renew their rent the following year and pay salary conveniently.

Not all revenue is profit: Every money that comes in as revenue is not profit. 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 successful business.

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