Women entrepreneurs must remember that
- The objective of running a business is not to generate sales but to generate profit. Unfortunately too many people focus completely on the ‘top line’, often times leading to disastrous results – the top line of the organisation is going up and the bottom line is coming down. The entire objective of setting up the business is defeated.
Always remember that top line (generating sales) is a means towards an end, which is the making of profit.
So the first habit to be inculcated is the habit of focusing always on the profit. To do this they will need to learn how to understand the impact of every action on the organisation’s bottom line.
- The second habit that needs to be inculcated and nurtured is to monitor the cash flow of the organisation.
Very soon after starting the enterprise women entrepreneurs will realise that there is no connection between the profit that an organisation generates and the bank balance that it possesses. In fact, I stand corrected, there is a co-relation. It is an inverse relationship. Paradoxically, the greater the profit, the lower the bank balance. (Some other time I will elaborate on this statement).
Having said that the objective of running a business is to generate profit, women entrepreneurs must remember if their business is making a profit, it is a battle half .won. The other half lies in their ability to effectively manage cash flows.
- The third habit, which is perhaps the most critical, is the habit of ensuring that they only use long term funds for acquiring long term assets and the short term funds can be used to buy short term assets. There is no harm if long term funds are used for short term purposes, BUT NEVER EVER USE SHORT TERM FUNDS TO FINANCE LONG TERM ASSETS.
The obituary columns of failed businesses world over are replete with examples of companies that have financed long term assets using short term money. 4. Women entrepreneurs will do well to remember the mantra, that in business (and also in life, in general) ‘less is bad, and more is worse’.
When a business is started, should it possess less money than it needs or more? If it has less money than it needs it will get into trouble; if it has more money, it will get into bigger trouble.
Should you have less manpower or more; should you maintain less inventory or more; should you offer less credit to your customers or more. Remember the mantra – les is bad, more is worse.
- Finally women entrepreneurs must realise, very early on starting a business, that no money is free. Borrowed money has a cost. So does owners’ money. In fact, the most expensive source of money is owners’ money. And the habit to be inculcated is to monitor and ensure that the returns that are generated through the deployment of funds on acquisition of assets covers not only the cost of production, sales and administration, but also the cost of capital. Else, frustration will set in, often giving rise to a feeling that the business is being run merely to generate employment in the country and to provide business to vendors and bankers.
Dr Anil Lamba is a practising chartered accountant, financial literacy activist and an international corporate trainer. He is the author of the bestselling book ‘Romancing the Balance Sheet’. He can be contacted at firstname.lastname@example.org