Lesson 1: How to Manage Your Money

Understand Business Finance

To start your business you will need money and to keep it operating, you’ll need to know how to manage money well. In this section you learn the basics of finding funding for your business as well as how to manage money so your business can continue to operate.

Skills You’ll Learn:

• Money Management

• Funding your business

How Much Money Do I Need?

Draw up a list of all the things you need to pay for and decide which ones are more important. If you’re opening an internet café, it’s not necessary to hire a cleaner. Arrive 30 minutes before you open the café and clean it yourself.

Open a Business Account

Open a business account so you can earn interest from the money you deposit. You also get benefits like professional advice, loans, overdraft, and other services you might not get when using your personal account.

Your Cash Flow

If you’re a business owner, you’re going to always keep an eye on your cash flow. What is cash flow? Isn’t it just, well – cash? No – there’s more to it than that!

Look at it this way.
If you own a business, you need cash available for key expenses, like supplies, rent, employees, and more.
Cash flow is what you have left over after paying for all of these; as well as your loans and investments.

1. Calculate your cash-flow cycle. The cycle is the amount of time it takes to buy parts, produce the product, then sell and receive payment for it. So, if it takes you 2 days to buy parts, 10 days to produce your product and 5 days to collect your cash from your customer, your cash flow cycle would be 17 days. It’s a calendar, essentially. Divide that number by 365 – and that will show you how many “cycles” you’ll have in a year.

2. Find out how much cash you generate per cycle. To boost cash, you could look at increasing the price on your product. The alternative is to speed up your process. Making your cash flow cycle faster will improve the amount of cash you’re making per cycle, and that’s what we’re going for.

3. Make sure your process doesn’t tie up important resources. If you can see an area that is needing too much cash versus time, revise it.