written by: Ritchie Cruz, Principal Director
Do you know that about 60% of small business startups close down after just three to four months of operation? Research surveys have established that many business owners shy away from greater involvement in their small business finance. Furthermore, the majority of small business owners tend to leave their financial and legal aspects of the business to accountants and lawyers while only concentrating on the returns and profits.
However, small business owners like me (I own a Cyber Café) should know and understand that, being successful does not only entail the “sexy” parts of the business such as the product, brand, design or marketing aspects. On the contrary, arming oneself with the crucial financial skills is paramount to the long-term success of a business.
From a personal perspective, I have applied the three key financial issues below to my Cyber Café business, thus making it successful. The understanding of finance has helped me to understand the cash flow issues, and promptly paying the taxes as required by the law.
In this regard, there are three key financial issues that small business owners must understand and learn for the benefit of their organizations.
- Small business owners must understand the issue of taxes and its effect on the business. For instance, they must know how to pay, and tax employees or individual salary (self-employment tax), paying quarterly taxes and allocating payroll taxes.
- Small business owners must understand the nature of cash flow as it affects the movement of money in the business. For instance, it is essential to know when and where to expect income, and the prompt payment of bills. The understanding of finance helps small business owners to match all the income with expenditure, and ensure that surplus profits are re-invested to help during the lean months.
- Finally, the understanding of finance helps small business owners to develop an adequate plan for the succession of the business. An adequate, well thought out plan will help curb the effects of business failures within the first three to four years of start-up. The succession plan will help to map out the next phase of the business, thus making it a “going-concern” enterprise.
In conclusion, small business owners must appreciate that the knowledge of finance is vital to understanding how the business works in relation to money. Although, accountants and lawyers are essential for the running of a business, the knowledge of finance helps in formulating effective solutions, thus understanding how to separate personal and business funds for the betterment of the company.
