Many businesses struggle with growth. There are many reasons why that happens. You might also have this problem where you want to grow your business, and you think you have done all it takes, but somehow the business is stagnant or is dying. In that case you might want to take a closer look at how you manage your business, and one of critical places to take closer look is how you manage your finances.
Harvard Business School Professor Ranjay Gulati once did an interesting research. The big question in that reasearch was:
“Why do some startups that have crossed the threshold of “product-market fit” and have a viable business model with a growing revenue stream still fail?” [1]
One of the reasons Prof. Gulati found were fear of putting a working structure. In Professor’s words, “Founders resist putting in place structures and systems as they grow and that eventually leads to organizational chaos and ultimately, failure”[2]
This is true of every part of the business, but in this article, we will look together how you can greatly improve the chances of your business growing and eventually outlive you. Here few areas you might want to check.
1. UNDERSTAND YOUR REVENUE
Peter Drucker is attribute to have said “If you can’t measure it, you can’t improve it”[2]. This is true in business, in that you can’t improve what you cannot measure. To improve your revenue stream you have to know it, and get better understanding of both processes to make that revenue as well as the numbers. Since we are looking at the finances, I will purposely ignore the other part.
Revenue comes to different “tanks”. Some just do have single Bank account and all flow is managed from there. But at some point there will be cash in hand, for paying varieties of bills and expenses, then with modern technology, you might even have some mobile money accounts. If that is not enough to the chaotic ocean of your “tanks”, you might have payment by checks, money gram or many other ways that are not paid directly to your account. The totality of all these are then aggregated into revenue.
In order to manage these, a lot of businesses have a well thought paper mechanism, where everything is well documented and follows certain processes to make sure that each and everything is well accounted for. The problem with this is, this system is not effective. As Professor Gulati noted “going too far on the other extreme with too much structure can also be equally detrimental and kill the soul of the startup”.
If you are business is chaotic and ridden with papers that you stare at trying to make sense of things, then it is time to think like the 21st century business you are, and the answer is Technology!
Using proper technology can help you put together all records and easily make sense of your revenue. For example a good software account with book keeping functionalities can easily aggregate your “tanks” to income under one place and give you overview of what you have in banks, Mobile money, Cash in hand or any other kind of income. As a bonus, any decent system should also tell you how much of your sales is paid and what amount is still in your customers’ hands. This easy following up with your customer with easy. Now imagine the same process with papers!
2. TRACK AND MANAGE YOUR EXPENSES
In the same research, professor Gulat found that another problem startups ( and in my opinion many other business) fails is what he termed as “preserving the cash cow”. In essence, he explains it as moving away the focus from what the business should be doing. Professor says “As the startup grows and you have been able to secure more funding, founders may feel that it’s time to add more feathers to the cap, taking the focus away from the core business”
Now you probably you are the leader in your business and all your staff look unto you for the direction which you envision it to go. Probably you have even shared the strategic plan for the business and everyone is well conversant of where the team should sail the boat. But as a leader, you are still in charge of steering the business in the right direction. As Drucker once said “Management is doing things right; leadership is doing the right things”, having good management or team means that you have people who can do things with excellence. But as a leader it is your task to ensure that your team excel in doing things that matter and are inline with the strategic plan.
Now you might wondering what have all these have to do with expenses? The simple answer is, expenses are reflection of execution of activity. For example you have wages bills because you hired someone to do something. So your expenses, if not steered correctly, can go wild. Businesses have a lot of things they can decide to do which have financial implication. You must be well informed of the business expenses so that you can see if your good management is still on-track in relation to your strategic plan or need some steering back to the plan.
Again, if you can’t measure it, you can’t improve it. If you can’t improve it, brace yourself for impact!
3. PROFIT AND LOSS ARE ALWAYS A RESULTS
Many businesses think of profit or loss as something to keep eye on. That is not true. You should keep your eyes on revenue as well as where you spend. If you master the two the third is unavoidable. You will always need to spend as less as business can afford and try to get as much sales as business can afford. Again this does not mean you should underpay your team or provide low quality service to your customer. It means that spend only what is necessary, and defer or don’t pay for unnecessary.
YOU CAN START SMART… AGAIN!
Now if you have been facing the problems outlined, you are not late. You can start moving in the right direction and taking control of your business back. There are many things to do, as we said above, but cash is king. You need cash to run a business, so it makes sense to begin by taking control of your business finances.
The first step is implementing a good Book keeping software. The Internet is full of them, both proprietary as well as open source. The question is, which one is good for you? That will require you to do a lot of demo and trials to come to your own conclusion. Moreover, if you are doing a business that sells good, it is essential to track your inventory as well and be able to synchronize it to your books. The two will give you financial image of your business at any point in time, helping you to have right information to tell you where you stand and if you are still on track in relation to your strategic plan.
If you would like a well though and simple to use Bookkeeping and Point of Sale integrated software, make sure to checkout our Adiuta Business Assistant. You can request a live demo with someone here or call +255767893474. You can chat with us via WhatsApp on the same number.
Peter Drucker once said, Whenever you see a successful business, someone once made a courageous decision. Will you choose to make that courageous decision today to enable you to be that successful business in coming days? Choice is really yours!
Notes: