One of the first skills every entrepreneur
need develop is financial intelligence – knowledge and understanding of
financial matters such as financial planning, the time value of money, insurance, investing, saving, tax planning, budgeting
and assets and liability management. You may hire an accountant to do much of
your financial administration, but at start-up, when you are unlikely able to
afford one, your limited knowledge of the basics will help you balance the
Without financial intelligence, your
business may falter and fail, even before it gets a chance to thrive!
Entrepreneurs are risk managers, the greatest
risk they face being financial stability. To start a business you need assets,
essential items with value that help you earn money. A website developer[WB]needs Internet connectivity, a baker[B]needs flour, a clothing designer[CD]needs fabric. You will also need to purchase,
lease or rent utensils, machinery or equipment, and premises to conduct the
business: a computer for WB, oven for B, and sewing machine for CD. These are
traditional styles of business management. In an era of innovative thinking,
the world’s biggest bank has no cash[Bitcoin], its biggest taxi company owns no vehicles[Uber],the most popular media owner creates no
content[Facebook], the most valuable retailer has no invention[Alibaba],and the largest accommodation provider owns
no real estate[Airbnb]!
The business model you adopt will
determine the assets you require – perhaps only a Laptop and Internet
With good understanding of the nature of the
business, you will be able to distinguish between the things you must have and
the less essential items. Thus, you can minimize both your financial risk and
the amount of start-up capital you need. Procure only what is absolutely necessary
and add all else – increasing your asset base – as the business grows and use
of the specific asset is justified.
You may choose to be resourceful and raise
personal savings over time as start-up capital, but this may be insufficient to
get your business up and running. On the other hand, family and friends may be
supportive in funding your dream. Should you seek support from a financial
institution, a venture capitalist, or even an angel investor, do not commit without
due diligence on the concessionary rates offered to small businesses by
financial institutions under a Central Bank-enabled plan.
Governments generally have a policy on
financial and technical assistance to Micro, Small and Medium Enterprises[MSMEs].
Any support you get, financial or otherwise,
is a vote of confidence in you as an entrepreneur. Be cautious, there will
likely be some caveats – donors may want a say in how your business is run, or
demand to share profits. Whatever the source of funds, be sure to write and
sign an agreement with the creditor. Research the conditions for a loan, ask
pertinent questions: Are rates offered reasonable? Are repayment and agreement
terms understandable? What will be your obligations to the lender? Do not
accept loans with a high interest rate or difficult terms. Should you opt to
take a loan, it is important to understand just how involved the lender[s] want
to be in the management of your business.
This series on Financial Intelligence will
discuss issues related to raising business capital and basic principles for managing
business costs without jeopardy to product or service quality, and customer