By K. C. Soares, ContributorAS A follow-up to previous articles which dealt with how to choose and start a small business, I think it is necessary to alert the new businessman or businesswoman about the fluctuation in self-employment income that will occur especially in the embryonic stages of the business.
To handle fluctuations of self-employment income, there has to be a combination of different management strategies. Knowing how to handle money properly becomes very important, as income from a new business often comes in spurts, where money comes in today but there is none tomorrow.
To deal with the fluctuations of self-employment income, both financial and psychological adjustments are required. The basic principle is to stay in control of your money at all times and stretch every dollar, especially if there isn't much around. One cannot start a business thinking that money will immediately start flowing into one's bank account. Some businesses, such as buying and selling, commonly referred to as higglering, generate revenues within as soon as a month, but some could take up to a year before there are any financial returns. If one should quit one's job, I would suggest that you should save up enough money to last you and your family, if there is a family, for at least six months.
From the very outset, good planning can provide a hedge against the financial uncertainties of a new business. For instance, if you are preparing to leave a full-time job for self-employment you will need to know how much money you will need to make in the early months of your business to make it work. You will need to know your expenses and when payments are due. Recording your spending patterns could help you prepare a realistic budget, which will give you a clear idea of where your money goes. As your business grow, budgeting will remain a crucial step to managing financial uncertainties.
KEEP CASH FLOWING
It is important to keep cash flowing to the business as lack of cash is often the kiss of death for many small businesses. To ensure that the business has adequate cash, it is of utmost importance that money is collected quickly. To do this, invoices should be sent out promptly and one should never wait for weeks after goods are delivered or services performed before doing so. Collect as quickly as you can and avoid long drawn-out account receivables. The longer the money is left uncollected the more difficult it will be to collect.
Another key area to which attention must be continuously paid is the matter of marketing. Marketing is a never-ending endeavour. The next sale starts at the close of the first and the next, and the next. The fact that you have a client or customer now does not mean that you should stop marketing your business. The best way to even out financial ups and downs is to make sure that you always have customers.
It is always best to prioritise your payments. If money is tight, determine which creditors you need to pay without delay and which ones you can stall. It may be necessary to negotiate with suppliers and request a payment extension. This is possible with, for instance, the utility companies (light, water, telephone) as they can often allow up to a month's delay of payment. It is important that such bills are not ignored by taking for granted that you have up to a month to pay. In so doing the service may be disconnected, thus increasing the amount to be paid. With respect to taxes (general consumption tax, education tax, national housing trust, etc.), these should be paid promptly, even though we would all like to avoid them. Deliberately ignoring taxes will attract interest and penalties which may result in undue strain on the business.
At all times, it must be kept in mind that the secret to successfully starting and keeping a business going is the ability to live on less, both professionally and personally. Many new business persons cutback substantially on their lifestyle to afford the business. The business can fail if what little money is made is spent on fancy motor vehicles, top class antique furniture, lavish vacations and other less productive items. Only when the business grows and prosper should luxury items be considered.
Finally, to ensure success and therefore one's income from the business, the best possible service should be given to customers/clients along with incentives to keep them coming back time after time.
K. C. Soares is a former banker and is now a business consultant with Soledad Financial Services Limited. E-mail: soledad@netcomm-jm.com.
