Cynthia is ecstatic.
Her application to the Lagos State Employment Trust Fund (LSETF) was successful. Her Business, Cynthia’s Cakes is now a proud beneficiary of a N5 million LSETF loan at just 5%! She plans to use the funds to expand her business to other locations within Lagos.
Now that her business will be funded by a loan, she knows she has to be more accountable with her business finances and cannot continue as usual. She scheduled a session with Mrs. Adesuwa, her mentor who runs a chain of make-up outlets.
At the end of the session, Cynthia is convinced Mrs. Adesuwa’s tips should be shared with others. She knows many business would benefit from such wealth of knowledge, so Cynthia put pen to paper and wrote the post below to share with the LSETF so they can share with other beneficiaries.
1. Set up a company bank account: Cythia was only able to access the size of the loan she got from the LSETF because Cynthia’s Cake’s was an incorporated company with its own dedicated bank account. Mrs Adesuwa told her that opening a corporate bank account, especially as a limited liability company positions a business to gain access to more financing opportunities.
2. Diligently organize your finances: Mrs Adesuwa emphasized the need for diligent keeping of records by entrepreneurs. Keeping invoices, receipts, and recording transactions would equip any business owner and potential investor with information required to make prudent business decisions.
3. Separate business from pleasure: Cynthia was embarrassed by the horrified look on Mrs. Adesuwa’s face when she admitted to using her business debit card when she went out with her family. Separating business finances from personal funds is essential in managing business finances. Being self disciplined is a “major key” to managing your business finances, said Mrs. Adesuwa.
4. Pay yourself: Related to separating business from pleasure is paying yourself. Where an entrepreneur allocates a certain amount monthly as salary, there is less likelihood to use business funds to take care of personal needs. Mrs. Adesuwa also pointed out that paying oneself is a healthy way to test the profitability of a business, as the true position of a business’ finances can be assessed.
5. Keep operating costs low: Outsource and leverage sharing as much possible. At the early stage of a business, it is okay to outsource certain functions. For every employee hired, the company has to not only pay salary, but all other relevant contributions which makes hiring cost high. Instead of hiring an accountant, a marketer, a lawyer, outsource these roles in the early days. Also take advantage of co-working spaces to share operational cost. Mrs. Adesuwa even advised sometimes bartering services, i.e. provide a service in exchange for a service you need.
6. Join a small business association: Mrs Adesuwa also advised that Cynthia join a small business association, which would enable her grow her network. Joining a small business association would also position Cynthia to benefit from product discount offers these small business associations have with suppliers and vendors. Mrs Adesuwa pointed out that these small business associations organise thrifts which could provide a source of capital for a business and also have exclusive access to certain government funding initiatives.
7. Pay your taxes: One of the tips that surprised Cynthia was that remitting taxes could actually help save money. Non-remittance of taxes & levies could amount in huge penalties and fines for small business in the future. In hindsight, the business owner would realise that prompt remittance of taxes saves time and money because “Prevention is better than cure”.
8. Get alternative payment channels for your customers: The less a business owner handles cash, the less the risk of theft or unplanned spending. Mrs Adesuwa encouraged Cynthia to adopt various payment channels like debit cards, mobile payment, POS terminals and even online bank transfer. Mrs Adesuwa uses all options in her shop, she has a POS terminal from 3 banks, uses PAGA and encourages her customers to pay by bank transfer.
9. Leverage technology to manage finances: Mrs Adesuwa encouraged Cynthia to embrace technology to keep her books. Softwares such as Wave, Accounteer, Invoice.ng, and Payant are softwares small businesses can use, to create invoices, track bank balances and any other transactions. Products like eChange can be also used to give customers their balance (i.e. change)
Mrs Adesuwa emphasized that financial discipline is a strong determinant of whether or not a small business will succeed. Cynthia knows this too. She also knows that financial discipline will help her repay the LSETF loan and give her a higher chance of accessing more capital in the future.
