The unfortunate news is that up to 63% of new businesses fail within their first two years in South Africa. Overwhelmingly, the reason for this is bad financial management. Business funds are mismanaged, entrepreneurs don’t know how to raise capital and spending spirals out of control.
However, financial management is not difficult to learn, and is an essential skill for entrepreneurs, who employ up to 60% of South Africa’s workforce. Here are five reasons why you need to boost your financial skills.
1. Understanding financial jargon
With the recent recession hitting everybody where it hurts, entrepreneurs have come to realise that they weren’t following what was going on around them. Mostly, this was because they didn’t understand the lingo being used, and couldn’t decipher the warning signs for themselves. Wrapping your head around the jargon of the financial world not only makes you a better businessperson, but a more informed world citizen.
2. Reading financial statements
When you know what you’re looking for, financial statements aren’t nearly as intimidating as most people think. These reports have the ability to give an overall picture of a business in an absolutely uniform format – allowing you to get real insight into what makes your business tick.
3. Appreciating the time value of money
An unassailable truth is that a rand today is worth more than a rand tomorrow. Too many company owners make the mistake of letting others hold onto their money, and it’s costing them dearly. Whether you want to get a clearer picture of what is takes to invest in growing your business, or feel you should be paid by your clients faster, the time value of money is integral.
4. Better profit planning and control
It might seem a backward thought, but did you know that it’s often the case that producing and selling fewer products can make you more money than selling more? Profit planning helps to chart the most efficient and effective volumes for your business, by looking at your input costs, sales prices and margins. Knowing what helps, and hurts, your profits is the fastest way to take your business to new heights.
5. Managing cash flow better
Cash flow is the lifeblood of any business, and anybody who disagrees will be out of business soon enough. Setting budgets, knowing your expenditure patterns, and getting cash in from customers are often not entrepreneurs’ strong points. But disregarding these vital activities is signing your business’s death warrant. So get on top of your cash flow, before it gets on top of you.
The University of Cape Town Basics of Financial Management course starts on 28 March 2011. For further information contact Lyndsay on 021 685 4775 or lyndsay@getsmarter.co.za, or visit www.getsmarter.co.za