Money Management and Business

It's very important to know that money management is a key driver to running a successful  business. They way you manage your money will determine the way in flow and out flow of cash are being managed in your organization. Money management is also key to personal effectiveness. 

In a simple term, money management is the ability of managing our daily expenses in such a way that it doesn't largely affect our income. This involves ensuring that you expend responsibly and still have enough money left for savings. It is said that when your outgone is greater than your income. Your upkeep will become your downfall. 

This boils down to spending more than you receive.

Money management could also be referred to how you handle all aspects of your finances, from making a budget for where each paycheck goes to setting long-term goals to picking investments that will help you to reach those goals. 

Money management is not just about saying "no" to any purchase, but developing a plan that allows you to say "yes" to the things that are most important to you. Any amount of money can prove to be too little if you don't have good money management skills.

So how does money management influence business 

1. Good money management leads to additional capital: This means one should be able to identify and track one daily expenses. Then break it down into cost buckets. E.g. know the amount you spend for telephones, rents, charity, personal development, power supply, feeding, transportation in a month. Then fix a cost for this and minus it from your income then it gives you your savings. I.e. If your total income for the month is $50 and your expenditure are as follows; Transportation= $10, Feeding = $10, Rents = $5, Charity = $1, personal development= $1, Telephone = $1, Power Supply = $2. So, Income - Expenditure = Savings. 

In the illustration above;

Income = $50

Total Expenditure = $30

Savings = $20

Now, imagine I save $20 for a year. That's $240. So, $240 dollars can be pumped into my business or investment. 

N.B: Your Opearting expenses are those daily expenses you incur while your capital expenses are your savings that you use for capital projects. 

2. Good money Management allows you to understand your financial priorities and track your spendings. Often when we do not have budget for our Income, we can withdraw money from our businesses and that may affect business performance. So, a good monthly management plan will help you seperate yourself from the business. According to the business entity principle, the transactions associated with a business must be separately recorded from those of its owners or other businesses. 

In Summary; 

1. Identify your monthly expenses (emanates from daily expenses) and Income

2 classify your expenses into cost buckets (Transportation, Power Supply...etc) 

3. Find a capital project to finance e.g. Investment or Business

4. Get your savings at the end of the year or months to finance it. 

Above all, the key to managing your income is through discipline. 

Thank you for reading! 

Photo Credit: pixababy.com