René Botha | 23 November 2023
René Botha is the regional investment Manager at Business Partners Limited.
Warren Buffet, one of the world’s most successful businessmen and investors, once gave his opinion on the two most important rules to remember as an investor. Rule number one, according to Buffet, is to never lose money. Rule number two is to never forget rule number one.
Simple, but profound, Buffet’s advice is also true for entrepreneurs investing in a business.
Good financial habits can make or break an entrepreneur and staying on top of things financially means not only developing an acute understanding of how money works, but also knowing how to make your money work for you.
Business Partners Limited has been running a quarterly survey of the small business ecosystem for over a decade. The SME Confidence Index measures small business confidence and garners the opinions of entrepreneurs on the most pressing issues they are facing.
Cashflow management has consistently been one of the biggest challenges facing small business owners and the index records this. Read more: Cash flow is the key to keeping small businesses afloat.
This has remained a reality, even amid other very real challenges such as the Covid-19 pandemic, the 2021 social-political unrest, the state of the economy, crime and the ongoing energy crisis.
These findings are testament to the correlation between sound financial management and long-term success as a small business.
Although the world’s most prolific minds in business have their own nuances on what it means to manage finances effectively, there are three habits that stand out as being pivotal to success:
Vusi Thembekwayo is one of South Africa’s most accomplished businesspeople, having built a R140 million plus business before the age of 30. Although he has much to say on the topic of financial management, one of the principles he follows is frugality.
He has been quoted as saying: “Today, if I don’t have to spend on it, I don’t spend on it. It’s amazing how far a rand can go if you’re clever.”
One of the hallmarks of effective cashflow management is reducing the outflow of money from a business as much as possible through cost-cutting measures and keeping your overheads as low as possible.
It sounds simple, but in practice, resisting the urge to spend unnecessarily takes an extraordinary amount of discipline.
One of the most common practices among successful business owners is that they harness the power of compound interest and earn passive income.
South African philanthropist and the country’s wealthiest woman, Wendy Appelbaum lived this philosophy when she moved away from working in the world of finance and invested in South Africa’s burgeoning wine farm industry.
She used the money she had at the time to generate more money. As many financial experts put it: “it takes money to make money”. Instead of accumulating depreciating assets, which are actually liabilities, successful businesspeople invest in appreciating assets and in doing so, are able to build long-term wealth rather than short-term riches.
Mapalo Makhu is the author of South African bestseller, You’re Not Broke, You’re Pre-Rich. In her book as well as through numerous other published works, she emphasises the importance of saving. This, as she says, is one of the most important financial habits to develop.
Makhu recommends breaking up your budget into percentages, each allocated towards a certain outcome. In general, she recommends that at least 20% of your income should go towards saving, investments and debt repayments.
Approaching budgeting as allocated percentages is a highly effective way of visualising how money is being spent, managed and most importantly, saved.
How do I set savings and investment goals?
Why is compound interest so important in investing?
Cash flow is the key to keeping small businesses afloat
