I was sitting with a very old friend who is a brave entrepreneur. He has successfully owned businesses in the US, Sri Lanka and now experimenting with his travel knowledge and owns a Travel Agency in Karachi, Pakistan.
He was in bad mood!
Reasons:
1.Phenomenal increase in cost of doing business
2.Strike calls by various political and religious outfits in protest of one thing or another.
Knowing my friend, I asked him about his financial management policy. Response: Sales-costs=Profits. Well done I said!
But how do you price your services? Are you now underselling, how much capital has been with held by your suppliers (airlines etc)-did you add the cost of capital into your pricing, how much is your promotional cost-who pays for this?
These were aftershocks for my friend. He never built those costs into his pricing and was also unaware if he was underselling. The only thing he knew, “His company was getting into financial trouble”.
I remembered a tag lines from Robert T Kiyosaki’s book Rich Dad Poor Dad “The Rich Invent Money”. They do it by carefully considering the financials of their businesses, “every bit of financials”. They understand the difference between assets and liabilities. They invest in assets and reduce their liabilities. This helps them invent money. That is the power of
Robert suggests:
“ the primary cause of financial struggle is simply not knowing the difference between an asset and a liability.”
Usually businessmen, particularly in countries with low literacy rate, struggle in working with their financials. Today I understood the key reason for business failures in developing countries – Lack of Financial Literacy - A knowledge that ensures the strength of a company.
