THREE THINGS EVERY ENTREPRENEUR SHOULD BE FINANCIALLY AWARE OF.
With more people becoming entrepreneurs in today’s economic climate, whether by choice or design (e.g. following the loss of a job), here are three quick things that I believe every entrepreneur should be financially aware of!
Cashflow is the flow of cash in and out of your business!
Cashflow is important because it can make or break your business. An example of how this can happen is if at a given time your creditors demanded to get paid and you were cash strapped, you would probably need to liquidate some business or personal assets to cover their payments.
Three ways to manage your cashflow better:
1. Know how, when and where your cash needs will occur
2. Know the best sources to cover them and any additional cash needs that may occur
3. Be prepared to meet these cash needs by proper planning and maintaining good relationships with your bankers, creditors and debtors.
2. GOOD DEBT VS BAD DEBT
Yes there is such a thing as good debt. Good debt puts money back into your pocket. It is therefore leverage that, if properly managed, will take you towards your financial goals quicker. An example of good debt would be a bond that you get to buy investment property. If the rentals on your property are enough to cover and exceed your monthly bond repayment amount then it is good debt because it is putting money back into your pocket. Bad debt on the other hand takes money out of your pocket. An example of bad debt is a clothing account. GET RID OF BAD DEBT! It is extremely expensive and keeps you stunted as you keep revolving the debt. It is like being in a rocking chair; lots of action but no movement.
Amongst other factors that you have to consider when pricing your product is to evaluate whether your product fulfils a need or a want. The needs category will include commodities such as food, water, shelter, or transport. The cash inflow when fulfilling a need is largely a matter of price. The lower your pricing, the more you will sell!
A ‘want’ is a luxury. We don’t need it but they want it. We need shoes but we want the Manolo Blahniks from the movie Sex and the City. Cash inflow here is determined by desire and the esteem that the product will bring the client rather than price. Therefore if your product is fulfilling a want, you usually have the luxury of charging a higher premium than you would with commodities.
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2 Responses to “THREE THINGS EVERY ENTREPRENEUR SHOULD BE FINANCIALLY AWARE OF.”
shaz says:August 2, 2010 at 09:06 (Edit)
I totally agree on the pricing and the debt issue….that has been one of the ways that I’ve managed to increase my savings! Often times we want things, we don’t need them! I’ll give you an example of the Brazilian hair craze thats currently going on in my city…every girl wants this virgin brazilian hair that costs a minimum of $350 and as much as a $1,000 to cover the whole head and most can’t afford and so tgo into debt for months!
Lelemba says:September 1, 2010 at 22:27 (Edit)
Thank you for your response Shaz! I am glad you found the article useful. Indeed that Brazillian hair craze falls right into the bad debt category. My principle for such luxuries is ‘if you cant afford it – dont get it.’ Rather save for it than get into debt. Thanks again for sharing