I. Businessman. (Part 7)
Managing money is an integral part of running a business. It’s something that every entrepreneur or small businessman needs to be great at.
Knowing where you stand financially gives you the ability to forecast, plan and preempt crises. And having a buffer to fall back upon, gives you the freedom to do so.
It is tough to admit this, but someday you will…
Learning No: 9
Our parents were right!
Learn to save money. Compromise (a little, if not a lot) on your lifestyle. Live within your means.
Once the revenues start flowing in, make sure to put away something for a rainy day.
With the way the global economy is shaping up, no one can predict tomorrow. No one can predict revenue flows. You cannot take business relationships for granted. What’s good today, may be bad tomorrow.
Over the last few years, given the volatility in the market, it is becoming more and more difficult for a small to medium sized business to work on revenue projections. There are too many factors that are variable in today’s scenario.
Very often, work that is assumed to be confirmed, gets canned or shelved, even after receiving job orders.
The options you have are either to accept the revised terms of the contract or to pursue legal action.
In India, taking legal action is usually the very last option for a smaller business. Firstly it shuts all doors with the client (which means no more business from them… ever) and secondly, it is a long drawn, time consuming and expensive affair.
So, more often than not, you accept the compromise and live to fight another day.
In such situations, your revenue projections and business flow take a serious hit.
If and when you do face a crunch, you should have reserves to fall back upon. It will help you tide over emergency shortfalls in your revenue.
It also has the added benefit of adding to the valuation of your organization, in case you don’t need to use it.
Once your business is up and running, it is easy to fall into the trap of looking at the big picture… “I have ‘x’ business in the funnel, I should end up making ‘y’ money, let’s spend on upgrading the computer systems, or change the interiors of the office”
The question you need to ask then is: ‘If my revenue flow completely stopped today, how long will I survive, running this organization, paying salaries of employees, covering the overhead and having something left over for myself?’
The answer to this usually scares the living daylights out of any entrepreneur… because you realize that there is a huge gap, between perception and reality.
TO BE CONTINUED…
(This is part 7 of a series of blogs on my learnings as an entrepreneur )
Read Part 8 here