Four financial decisions every entrepreneur needs to make

Kenyan currency [Courtesy]

As an entrepreneur, you will have to make tough decisions almost every day.

It’s both the most exciting and stressful part of owning a business.

While most of your day-to-day decisions will have a relatively small impact on the success of your business, some decisions will have a huge impact which can be positive or negative.

The most impactful decisions are financial ones. These will affect your cash flow and therefore affect every other aspect of your business. In fact, one of the biggest reasons small businesses fail in their first year is poor financial decision making.

The well-being of your business largely depends on your ability to make informed decisions, whether big or small. With that in mind, here are some big financial decisions every entrepreneur should be prepared to make:

Pricing of products and services

Pricing your products and services is a major financial decision for any entrepreneur. The price you choose will impact every aspect of your business, from cash flow, profit margins, staff salaries and whether you can afford to grow your business. If you set a price too high, it can discourage potential customers, while prices that are too low mean lower profit margins.

Unfortunately, there is no single formula for deciding the right price for your products or services. To make the right pricing decisions, you need to use a variety of strategies based on your costs, the prices set by your competition, your primary business strategy, and what your target customer is willing and able to pay.

Outsourcing or internal recruitment

In the early stages of business ownership, you may be able to manage many aspects of the business on your own or with a business partner. However, in a successful business there comes a point where you need to hire employees to help you with the day to day tasks of running a business.

At this point, the big question is, “Should you outsource certain tasks or hire employees in-house?” Unfortunately, no one can tell you which one is best for your business. You need to weigh different factors and make the decision that is best for your situation.

Freelancers tend to be cheaper than long-term employees. And contrary to what most people assume, it’s not because freelancers charge low hourly wages. This is because they tend to be more profitable than internal employees.

Besides their wages, employees have additional costs such as health coverage, retirement benefits, days off, etc. The costs of recruiting and training must also be taken into account. Full-time employees can also get bored with routine and become less productive.

Since freelancers are paid for specific services, they are more motivated to produce high quality work. You don’t have to provide them with health insurance, retirement benefits, or pay days off. Plus, they usually use their own equipment (like laptops or cameras) to work and work from home, saving you money you would have spent on office space and equipment.

The type of job or position, your business culture, industry and competitiveness, and what you can afford are key factors to consider when determining whether to hire a freelance or in-house employee.

How much to spend on marketing

To earn money, you have to spend money. It’s a common saying that means that without investing money in supplies, inventory, sales, marketing, and other business expenses, it will be difficult to make a profit.

In order for your target audience to know about your products and services, you need to invest money in marketing. You can market through online and offline channels like social media advertising, Google ads, content marketing, mainstream media ads, etc.

While marketing is important, small business owners find it difficult to decide how much money to allocate to it. When you are just starting out in business, it is difficult to spend money on marketing because you are always worried about inventory and other business expenses. But unless you invest in marketing, your target audience won’t even know that you have the products and services they need.

Business experts recommend that you consider spending 10-15% of your income on marketing. It might sound like a lot when you have to worry about a lot of other expenses. However, if you skimp on marketing, you might not have to worry about a business in a few months.

Whether to develop your business

Should you keep your business small or expand it as soon as possible? Every entrepreneur dreams of taking their business to even greater heights. With the expansion comes the promise of access to a wider variety of finance, increased production levels, attracting more qualified personnel, which ultimately translates into more income.

However, the decision to grow your business is not one to be taken lightly. Expanding a business is a difficult and complex process that many entrepreneurs tend to underestimate. Changing a business too quickly or too soon can create cracks in the foundation of your business that will cause it to collapse sooner or later. A study found that 74% of high-growth start-ups fail due to premature expansion.

Before you make the decision to grow, make sure you have the right systems and processes in place to maintain the quality and consistency of your products and services. In addition, study the market conditions to ensure that your expansion will be successful. Whatever you do, don’t try to save money as you scale your business. Compromising your company’s values ​​for rapid growth is likely to backfire.

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