The Psychology of Money: Understanding the Role of Finance in Your Business
By Precious Mvulane
The second edition of my book, The Essential Finance Handbook For Entrepreneurs came as a result of my experiences as an entrepreneur. I understood the mechanics of business finance, but did not know the psychology of money. At the age of 14 years, I had already started learning about business and eventually had work experience with a qualification in finance. So, I thought I knew what I was doing. I did not comprehend money beliefs, the language I used and the associations I had with money. I did not have any financial goal that I needed the business to achieve for me; instead I was focused on the social impact with massive emotional attachment. As the result of these, my bank account did not reflect the value and contribution I made. Four years down in business, I had only R36.97 in my bank and a R100k credit card debt. I loaned the business R1.2m. This was my lowest bottom line, and it could not get worse than this. I searched for practical solutions which would work in any circumstances. As I applied the solutions, I saw growth of over 400% in sales within 18 months.
Running a business has been one of the most challenging things I have ever done in my life, yet it has been the most rewarding experience. The advice and guidance I am providing is from the mistakes and successes of my clients and I, I hope you will try the principles in your business.
The book will help you learn and apply the basics of business finance that will enable you to set the foundation for success. I will further help you to incorporate other business functions to finance which will improve your performance. Finance is a result or an outcome of all the activities conducted in different functions in a business. Finance measures how well you have managed the resources. For you to manage finances well you will need to follow a systematic approach which will allow you to plan, execute and monitor your progress using checklists and templates provided in The Essential Finance Handbook For Entrepreneurs. Click To Tweet
This systematic approach has worked for more than 500 entrepreneurs, including myself. Each year, you have to go through the model when you are planning, executing, and monitoring
“if you don’t understand how finance works and you have no intention of educating yourself, you have no right to call yourself a businessman or businesswoman. “
This is my question for you as I conclude on today’s article
Can you identify with any of the following challenges?
- set goals but have not achieved them
- tried to join other people but it has not worked out
- not making money
- no clarity on compliance and responsibilities as the director, trader, employer and taxpayer
- overwhelmed by legislation.
- unable to pay for operational expenses, i.e.cash flow
- don’t know what a financial statement is or its purpose
- do not know how financial statements assist you to manage results
- don’t know how to calculate the cost of products or services
- don’t know how to set a selling price for products or services
- don’t know if you are making a profit or loss in each sale or contract
- unsure how to improve your cash flow
- don’t know how to identify financial risks and take corrective controls
- don’t know who to appoint to help with finances
- don’t know who to approach for help and how
- don’t know how financial ratios work.
If you answered yes to any of these questions then The Essential Finance Handbook For Entrepreneurs is for you.
Some people start businesses because they can’t find a job. They think starting a business is simple and easy. It’s neither. In a job, you only need to prove competency and experience in one area of skills such as finance or operations, whereas in business, you must have at least seven basic skills to succeed: production/operations, finance, marketing, sales, public relations/communication, strategic planning, human resources and administration. Be prepared to work hard and smart. Fight with all you have to make your dreams come true. Your future depends on the choices you make today. Think about the decisions you make, and how they will impact the achievement of your goals.
Set aside specific regular intervals to re-assess and reflect on your financial wellness. If you don’t have time, schedule it. We all have 24 hours a day. If you don’t have a skill, learn it. If you prefer to speed up your knowledge, appoint someone you trust to guide you. Business is about finance – if you don’t understand how finance works and you have no intention of educating yourself, you have no right to call yourself a businessman or businesswoman.
Remember, for you to be successful, you need to know your numbers for that is how we measure business success. The figures show you the end or outcome. Most entrepreneurs, say 8 out of 10, ignore issues of finance yet everyday they are worried about money. The reasons you don’t have money is because you don’t comprehend how the economy works and how to respond, including the psychology of money, habits, beliefs, and attitudes.
Most importantly, you have to master the running of finances consistently to get the money you desire. Reading The Essential Finance Handbook For Entrepreneurs will give you a head start. Enjoy learning to earn and manage money.