It takes hard work to move your purpose-driven business closer to your goal while ensuring that it’s sustainable. As you scale your business, you’ll realize that you need to be profitable to amplify your social impact mission. But before you think about capital raising, first and foremost, you need to understand why you need the extra capital.
In this episode, I discuss five misconceptions — and a bonus sixth! — on business finance that can cloud your headspace. Clearing out these misconceptions can close gaps in your business finance process you may not even know you had. In doing so, you can make more strategic and informed business decisions for your company’s growth.
If you are a mission-driven founder who wants to make the best business finance decisions, then this episode is for you!
Here are three reasons why you should listen to the full episode:
Find out five (plus a bonus one) business finance misconceptions that can cloud your business decisions.
Identify the gaps in your business and take steps to create solutions.
Clear your headspace and make the best decisions for you and your business as you look into capital raising.
Resources:
Visit Christina Sjahli’s website for more stories on entrepreneurial journeys to success on the Her CEO Journey podcast.
Getting ready for capital raising? Identify your financial gaps first by addressing these five business finance misconceptions. Download this quiz!
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Episode Highlights
[02:14] Know the Five Misconceptions in Business Finance First Before Going into Capital Raising
Having business finance misconceptions can lead to future financial problems.
These misconceptions can stop you from making business decisions to achieve a balance between purpose and profit.
Clear out these misconceptions to put your headspace on the right track.
[05:10] #1: High Price and High Volume Equals High Revenue
You assume that high revenue means high profitability.
However, revenue is only one part of finance.
You also need to consider your cost management process.
Focusing only on revenue is like focusing on vanity metrics.
“Focusing only on revenue is like focusing on vanity metrics. Because higher revenue does not always mean higher profitability.”
You should be able to connect the dots between different departments of your business.
[06:42] #2: Fast Growth Means a More Profitable Situation and More Cash Flow
If you’re looking into equity financing, you may be pressured to grow fast. Growing fast without proactive planning can lead to an unsustainable business.
“In order to grow your business and continue to be profitable, you need to be proactive and have a crystal ball.”
Use financial modelling to translate your vision into financial numbers. You can use these numbers to clear a path towards your goals.
Translate strategies into financial numbers to see the possible results of your growth in the long run.
Do your homework so you can understand the challenges ahead before making decisions.
“Do your homework. Understand the challenges ahead, especially in today's uncertain environment. Then, translate your strategies into financial numbers so you can see if your strategies will result in profit to expand your social impact before you waste limited resources.”
[19:32] #3: Financing Resolves All Cash Flow Issues
Financing through debt or equity can solve short-term issues by bringing cash into the business.
A leak in cash flow can worsen and continue if you don’t identify costly and unnecessary expenses.
The money hole or cash flow gap can be due to a breakdown in internal processes. It's possible to fix these holes without financing.
Get advice from your CFO to see if financing is the best and only situation before entering into any financial agreement. If you rush, you may end up spending more on the borrowing costs.
Capital raising when it is not needed can lead to a more significant struggle and a costly commitment.
[11:23] #4: Financial Knowledge for Small Businesses Equals Bookkeeping and Taxes
Bookkeeping includes recording past transactions. Knowing your past transactions can help you make crucial decisions.
Taxes include preparing for tax returns and how much you have to pay the government.
These two are the keys and foundations of business finance, but they won’t resolve long-term issues.
There is a need for a cash flow management process, budget, scenario planning and long-term financial modelling.
Long-term financial modelling can combine all aspects of your business and translate them into financial numbers. These can predict what’s ahead for your future.
[14:39] #5: Forecasts Are Pointless
Not utilizing forecasts in your strategy can put you in risky situations where your mission-driven business can fail.
You need to have a road map. In this roadmap, you can see what worked in the past and what can work in the future.
“A forecast is a roadmap. This roadmap combines what has worked in the past and what can work for you in the future.”
Forecasts can provide greater clarity to see different aspects working together to weather unexpected events.
Plan for cash flow gaps and identify financing needs to avoid financial problems.
Forecasts can help you make crucial business decisions that follow your values.
“This roadmap will give you greater clarity because you are able to see how all aspects of your business work together.”
[19:06] Bonus: Getting a Business Loan is Bad
Believing in this misconception can stop your social impact business from expanding.
A business loan can help you cope with unforeseen situations like the pandemic and address needs that arise.
Business loans can become a good debt if you have a clear purpose and plan to repay them.
Powerful Quotes
“First, you need to remove these five misconceptions about business finances from your headspace, because these misconceptions lead to future financial problems. This can stop you from deploying the extra capital you receive appropriately, stop you from finding the right investors. It can also stop you from achieving the balance between purpose and profit.”
"Financing is a bridge, not a solution to your cash flow problem."
“Only knowing your past transactions and paying your taxes won’t resolve your long-term issue. What you need are tools that help you look forward.”
“When you have the right tools and processes to check your business’s financial pulse regularly, you can be profitable and use this profit to power up your social impact mission.”
“A business debt is a bridge. As long as you take out business debt with purpose and create a clear plan on how to repay this debt, then you are doing the right thing for your business.”
Enjoy this Podcast?
As a mission-driven female entrepreneur, raising capital can be difficult. There are many misconceptions about vital financial practices that can get in the way of making the best decisions for your business. If you enjoyed today's episode of Her CEO Journey Podcast, then hit subscribe and share it!
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Have any questions about business finance? You can contact me through LinkedIn or schedule a chat with me at any time. You can also suggest topics you're curious about for future episodes to help your business grow. Thanks for listening!
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To fuelling the life you want to live,
Christina
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