Financial planning for an entrepreneur is important as it helps you understand the basics of your business and help you determine if your business is growing or sinking. A lot of time, as an entrepreneur, you’d assume you are making a lot of profit when you see your closing balance at the end of the week. But in reality, you are not making a penny. Rather, you are making back your cost prices and forgetting that’s what it is.
Have you ever had stock from months ago that has suddenly become a part of you? You’ve even done sales and these items refuse to go. And then, one day, someone come to purchase them all and you start counting your money and smiling, ‘Oh, I’m so rich’. Dear entrepreneur, you are not. The truth is that what you should have even made on those stock some months back would have yielded more interest and money for you.
Simply put, the longer those stock stay in hand, the more money you are losing. Because, the value of money depreciates or appreciate daily. Let me not confuse you with all these finance terms, rather let’s just dive into how to adequately do a proper financial planning for an entrepreneur.
Financial Planning for an Entrepreneur
The first thing I’d advise you to do even before you venture into entrepreneurship is to research the line of market you want to explore. Do you want to sell thrift clothes? Then:
- Check around what the average cost is of selling the clothes are
- Find a reliable supplier that sells quality and not stock your customers will always complain about
- Choose your own niche. What do you want to be known for? Dresses, tops, suits, skirts or all
- What’s your packaging going to be like?
- Where do you intend to sell, offline or online or both?
All of these questions and many more, will guide you into how you want your brand to stand out and be perceived.
Costing and Profit Marginalization
As an entrepreneur, never be rushed into selling an item just because you want to make money. If you rush without considering all the cost associated with producing or procuring an item, you’d end up working for your customers.
I’ve been there especially when I started my Afrocentric brand @debsclothier and I cannot even start to talk about how I was so pained for weeks and kept on blaming myself. But now I know better and wouldn’t want you to make same mistake.
Here are some factors to consider before costing an item. Please note that this is not cast in stone and it is subjected to various business model and cost.
#Exact cost of the item from supplier
This is your base cost for each item you are selling.
#Transportation cost of the item
This should be spread around the whole item you are shipping. Hence, it’s always best to buy more, so you spend less on transporting it. Say for instance, I ship in 20 ankara fabrics, if the transport to ship it in is N1,000, that means I add N50 extra on the exact cost of getting the item from the supplier.
So, if I buy more like 100pieces and the shipping cost is same N1,000, then the extra cost becomes lesser as it is now reduced to N10 extra on each.
Also, all those extra costs of gala and pure water sachet you incurred while running errands for your business are cost you have to factor into your selling price. When you spread it round, it almost non significant.
#Branding and Packaging
Nylons, cards, boxes, containers, and any other items used to brand or package what you are selling. For instance, if you make boxes for N5,000 for 100pcs. That means for every product you sell that will be boxed; you have to factor in N50 on each.
Internet, Airtime & Other miscellaneous
You’d actually not consider this but trust me, if you are selling online, you have to be online 24/7. Because you either are on social media talking about your business, engaging with customers or even other brands just to ensure your business is getting visibility.
I want to assume the data isn’t free and you are paying for it. Also, you are reaching out to some customers on phone to follow up with orders, when need be. You are also contacting your supplies, tailors, dispatch guys and moving around to take goods to potential customers etc. All of these are extra cost incurred on your business and they must be deducted from whatever profit you’d be making.
To make this easier, calculate all overhead cost (airtime, photography, collaborations and data) incurred for the month and deduct this from your total profit made for the month. This will give you a definite figure of what your exact profit will be.
If you are paying rent annually, this can be divided into 12 months and deduct what each month rent is from your profit. Should your profit be 0 or negative, that means you may want to adjust what your selling price is and this will help you know if you are actually making any sales.
Separate Business and Owner
These are 2 different entities and should never be the same. If I need a new fabric, I pay for it and credit my business account.
In addition, always ensure that your business account is separated from any other account you own. You don’t want to mix business with pleasure or have your cake while eating it.
Also, when separated, it’s so easy for you to track any money received or spent. And if at all, any customer mistakenly credits your personal account based on past relationship or what have you, ensure you move the money back to your business account.
A business account can be a normal saving account if you aren’t ready to register your business yet. On the other hand, if it’s registered, you are allowed to own a register account in any bank in Nigeria. The process is quite easy once you have all the required documentation.
What to do with your Profit
If you are just starting out newly, you will need a good capital to sustain your business. Hence, most entrepreneurs always put back their capital to expand the business and keep it running. However, once your business is self-sufficient and no longer need cash support to keep it running, it is very important to account for what you do with your profit.
You can either keep using it to grow the business or you can try some investment plans. For a start, depending on the volume, you can save in Cowrywise or Piggyvest, there are a number of investments here you can explore. Or you can try other investment opportunities as mentioned here; the main idea here is to ensure you do not eat into your profit and you are growing it and not just keep it idle.
Basic Tools to Use to Plan your Finances
There are quite a number of tools out there you can use to track and plan your business finances but the one I have always used overtime is Excel.
Here’s a sample template of what my business excel looks like every month, you can download it and tweak it to fit your business model.
While working on your financial planning as an entrepreneur, one thing to bear in mind is that you shouldn’t be in a hurry to make profit hence making your good overpriced. There are a lot of competitors out there who will sell lesser and even make you lose potential customers in the process.
At first, there may be losses, lesser profits than anticipated or more of breaking even, just keep working at it. Ensure you understand the basic principles of running and sustaining the business and improve on it. And it will only be a matter of time before you start counting your profit and investing them wisely.
If you need a one-on-one consultation with me on how to properly plan your small business finances, kindly send me an email on firstname.lastname@example.org. Financial planning for an entrepreneur cannot be captured in one blog post and it varies from one business model to another.
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