To be a successful entrepreneur, you need a great idea, a clear understanding of the market you’re seeking to enter or create, and limitless drive and enthusiasm. However, something that often gets overlooked in the list of core attributes for successful business owners is finance skills.
Putting it bluntly, if you’re clueless about calculating taxes, income, and wages, for example, you’re putting your business in the hands of expensive accountants. Why pay someone else to do what you could do yourself with a little research? A few essentials could save you money and make your business more successful.
Most business owners know the importance of keeping expenditure under control. However, make sure you’re aware of the grey areas: some things are essential, others discretionary. You might be able to attract a tax deduction on your outlay if it’s clearly for business usage, but the temptation to go for a more expensive computer or car should be resisted: at best, you’ll save about half the money you spend in tax deductions. Be tough with yourself by being more modest when luxury options beckon you. Similarly, think carefully about your office location: it makes sense to go for a prime location if your business is real estate, but if you’re selling tungsten-tipped screws, it’s an expense you can do without.
Distinguish between good versus bad debt. Don’t take on credit, loans or other liabilities for discretionary expenditure such as designer clothes, gadgets, white goods or furnishings. That’s bad debt; it can turn into a millstone around your business’s neck. However, some debt is good: debt that’s used specifically for the purpose of growing your wealth. An example is margin loans, which you can use to acquire equities when the stock markets are in selling mode.
If you’re thinking about taking on good debt, you need to weigh up the specifics of your business against it: if you’ve got lots of non-debt expenses (payroll, rent, utilities, and so on), the lower your debt, the easier it’ll be to pay your business’s bills every month.
Provided you watch your spending closely, business credit cards can be a wise option; you don’t need to be landed with an eye-wateringly high balance with these as you can pay them down more flexibly than a loan.
To illustrate how having a small but sound repertoire of finance skills can help, consider the story of Afghan entrepreneur Ehsan Bayat, founder of the Afghan Wireless Communications Company and the Bayat Foundation, which paved the way for the launch of the Ariana Television Network. Currently a Trustee of the American University of Afghanistan (take a look at EhsanBayat’s Bloomberg page), he has become one of the wealthiest persons of Afghan origin in the world because his financial knowledge helped him steward a stunningly successful business – he turned his company into one of the biggest telecommunications firms in the world.
Finance skills ought not to be seen as an optional extra. They can make the difference between survival and extinction for young businesses, and they can pave the way to wealth.