Financial planning for entrepreneurs

Tumelo Sejo Boitumelo The success of an enterprise depends on the owner. The contention is whether the success of a business is directly connected to financial literacy. Unequivocally, financial literacy for entrepreneurs must be enhanced to attain sustainable business growth. Financial education is not an option, but an imperative concept to be adopted, especially by SMMEs. Being a broad concept, Personal Financial Management helps individuals expansively plan for their finances, understand risk management which includes emergency preparedness.

Challenges abound for financial illiterate business owners; for instance, high risk in dealing with business transactions, poor cash flow management and a compelling need to acquire debt. It is a common trend for small businesses to opt for expensive unsecured credit due to soft terms. This results in dependence on micro lenders and an unhealthy financial relationship. Often times, the debt becomes overwhelming ending, unfortunately, in repossession of property. In light of the pandemic, which has arguably caused the biggest economic crisis in history, the above are exacerbated.

In the plight of the Covid-19 pandemic, personal financial management is fundamental. We have always been preparing clients for such hard times. Over the years, individuals have been warned to tighten their belts, yet we never imagined an unplanned event of this magnitude. It’s important to move a step back, and assess whether our entrepreneurs are financially literate or not.

Financial literacy defined by Noctor et al (2007) is “the ability to make informed judgments and take effective decisions regarding the use and management of money” The general understanding of money protects individuals from being misled about money. Investment and savings are critical elements of financial literacy. An entity has to grow and this can be achieved if its owner is able to apply the principles of investing to expand the business. Such decisions are influenced by the owner’s level of financial knowledge.

Personal finance demands radical behavioral change, discipline and commitment. Various groups in society must access financial literacy thereby capacitating them with the life skill of making informed decisions.

The current pandemic and its ripple effects on various sectors of industries is the biggest challenge for many economies now. It has perpetuated existing economic ailments like unemployment and poverty. It has now introduced a decline in economic growth, loss of jobs, increase in taxes and low performance across industries.

The situation has triggered government and financial institutions to save the perishing industries through a number of bail out initiatives for diverse classes of entrepreneurs. There is a wave of enterprising prompted by the need for individuals to diversify their income sources as well as the drive to survive after job losses.

The big question is, as money is injected in the economy to build industries and reduce the import bill, how much of it will cater for capacity building in terms of financial literacy? Personal financial management is vital for entrepreneurs as it influences growth and business continuity. Financial planning shouldn’t be an afterthought, it is a must.