Signing up for short business management courses, attending relevant
workshops and reading widely can save your business from collapse. PHOTO
| FILE
By MURORI KIUNGA
In Summary
- Without financial literacy, your venture is like a big ship in the sea without an engine — solely depending on waves and wind to propel it from one point to another.
A driving school seems to be a good business these
days. There are many thriving driving schools in Nairobi and other major
Kenyan towns.
Most aspiring motorists go to driving school long before they raise cash for a car. Even after completing driving school, many hire an experienced driver to take them through elaborate practical sessions to gain confidence that guarantees them safety and that of their new car.
No one wants to risk their lives and expensive car by taking it to the road without adequate preparation.
However, when it comes to starting a business most
people do exactly the opposite. They open a business without any
training or preparation and risk their hard-earned money, self-esteem
and health issue associated with failure.
Perhaps this explains why most of the cars bought
this year will still be on the road after five years compared to
businesses started this year, at least going by the statistics that most
start-ups fail within five years.
If you asked people why majority of small
businesses are struggling and even failing, they will most likely talk
of things like lack of capital, competition from big players and lack of
market for their products.
This is far from the truth. Several studies and
post-mortems of failed business show that the greatest cause of
failure is financial illiteracy.
Financial literacy is rarely acknowledged as a key
asset in business set up. Yet an entrepreneur’s financial literacy is
one of the key attributes that directly influences business success.
Basically, financial literacy includes aspects such
as financial management, stock control, risk management, record keeping
and compliance. Without financial literacy, it is difficult to know the
performance of your business at any given moment. It is also impossible
to intelligently plan for the future.
Without financial literacy, your venture is like a
big ship in the sea without an engine — solely depending on waves and
wind to propel it from one point to another.
If you are in a business and you cannot precisely
tell how much profit or loss you are making; how much others owe you and
how much you owe others; if you cannot tell the value of your stock and
other assets, then you are financially illiterate.
In other words, you operate your business blindly
on the assumption that if customers are buying and you are selling at a
price higher than you bought or produced then you must be making profit.
Another common illiteracy is on matters to do with
compliance. Most people start businesses without any clue of legal
compliance such as tax obligations.
As a result, they suffer huge losses and penalties when eventually caught by law enforcement agencies.
Fortunately, financial literacy can be acquired at
an affordable cost. Signing up for short business management courses,
attending relevant workshops and reading widely can save your business
and money.
Compliance is easier than most people think. Kenya
Revenue Authority, for instance, has an education department and carries
out regular seminars to educate small business owners on compliance and
taxation free of charge.
Before starting a business get a mentor, a consultant or
study carefully to find out all requirements. For you to succeed in any
business undertaking you must master key financials and basic
requirements within your business environment.
You can hire bookkeepers, accountants and financial
advisors to help you, but you cannot delegate the responsibility of
fully understanding them and their implication to your business.
Mr Kiunga is a business trainer and the author of ‘The Entrepreneurial Journey: From Employment to Business’.
Murorikiunga@yahoo.com
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