There is some euphoria that washes over many entrepreneurs when they get that message beep on their phone.
The credit alert!
I think it is a feeling of accomplishment, winning; maybe breakthrough?
It is a very potent feeling.
What comes afterwards is an almost automatic need to spend the money. Then the spending begins, most times without pre-meditation.
Is it wrong to spend money when you get it? Of course not! The germane questions are; what should you spend on? Is it yours to spend? Whose money is it?
Permit me to illustrate: Dayniton Enterprises sells wooden doors to estate developers. He just received a credit alert of N1.2million, bringing his previously low bank account balance to N1.3million. He immediately sends N900,000 to his travel agent to purchase an airline ticket and pay for 4 nights stay at a hotel in Dubai. He needs some rest and recreation because the stress has been enormous. At the end of the month, his staff salaries of N200,000 fall due, as well as his supplier’s invoice of N800,000. Sadly, there was no additional inflow into the account that month after the earlier referenced N1.2 million.
There are many things to make of this situation, but I will hit the crux of the matter: the N900,000.00 travel expense by the MD was ill-timed. It is glaring that the N1.2million received into the bank account that month, was not his to spend. It was actually money to settle his supplier invoice and his staff salaries. This is a very familiar situation.
It is possible that he genuinely forgot his obligations, and it is also possible that he remembered but could not be bothered.
You see, I strongly opine that business is a vehicle run on trust. Every stakeholder engaged in your business has expectations and hopes that you will continually meet those expectations, even if you cannot exceed them. Your suppliers, employees and even your customers hope that you will continue to be in business. Therefore, as a business owner, you must mentally and psychologically prepare yourself to constantly confront the choice of delaying gratification to keep operations running, or appeasing yourself and crippling operations temporarily or permanently. It becomes absolutely critical that funds are allocated in such a way that operations keep running, so that revenue can also be generated unencumbered, to the benefit of all stakeholders.
How then can an honest entrepreneur do better in resource allocation?
The first course of action is accounting automation. This way you do not have to rely on your memory or several stacks of notebooks to monitor imminent obligations. With best-in-class accounting software, regularly updated with transaction posting, you can see your obligations at a glance in a Balance Sheet report at the click of a button. This keeps you constantly apprised of the payables and you can even track due dates for each supplier invoice. Notable software used by young and growing businesses all over the world includes Sage Business Cloud, QuickBooks Pro, Xero Accounting amongst others.
Secondly, you need to work with cash flow forecasts. This can be very reliable, especially if you say that you do not have creditors and so you do not necessarily have to owe people. The cash flow forecast is usually prepared in advance. Some businesses prepare them in advance to cover three months or a full year. It is a plan of your expected cash inflows and cash outflows. What this does for you is that by the time you get those credit alerts, you refer to the cash flow forecast to see the items you have planned to spend on, and you utilize the business funds accordingly. A proper cash flow forecast will also plan for the entrepreneur’s compensation. This way, at the right time, he can get the funds to go on that much needed vacation.
It really is hectic running a business and many times you get to feel that you deserve so much more than the business is giving to you. You must however remember that if you take it all out at once, you are aborting the future of your business. Your employees do not want that. Their dependents are counting on them to continue to be in employment. The same goes for your suppliers and the customers who have become very comfortable doing business with you.
Dear entrepreneur, the next time you get that credit alert, please pause and ask yourself, ‘whose money is it?’
Here’s to making your business immortal!
JOVITA MADOJEMU
Madojemu is the managing director of Pundit Bookkeeping Services; a company bridging the gap between emerging businesses and professionally prepared accounts. He seeks to empower young businesses with financial intelligence, for business growth and sustainability.
Instagram @jovitamadojemu, @punditbk
Twitter @punditbk
Email – jmadojemu@punditbookkeeping.com
