Are you a victim of the common financial mistakes that kill small businesses in Africa? You’re about to find out.
I’m sure you would have heard the notorious statistic that nearly 80 percent of small businesses that start today may die within the first 18 months. This is both a sad reality and a mind-blowing suicide rate by any measure.
I call it ‘suicide’ because most small businesses actually kill themselves without knowing it. Entrepreneurs and small business owners often form bad habits and make harmful decisions that ensure their businesses don’t survive.
Don’t get me wrong; a business can fail for several different reasons. Some of these reasons are external (like a bad economy) while many of them are internal (you and the way you run the business).
Sadly, poor financial management is one of the biggest internal reasons for business failure.

This article looks at five common financial mistakes that small businesses make in Africa. If you already run a business, no matter how small, you may already be guilty of a few.
Let’s find out what these mistakes are…

YES, IT’S ALWAYS ABOUT MONEY
Every business (small and big) exists to make money. Period! Unless you run a charity, social program or some other form of not-for-profit organization, very few people would continue in a business that doesn’t make any money. If the goal of business is to make money, it only makes sense that entrepreneurs and small business owners would know how to manage their finances quite well, right?
Unfortunately not! Many entrepreneurs do not understand that a business is a living thing. And money is like blood to every business. If it doesn’t flow well, there will be trouble. If you let it waste or leak, the business will fall ill, weaken and probably die.
Financial illiteracy is probably one of the biggest self-made reasons why thousands of businesses fail in Africa every year. It’s not enough to have amazing business ideas. You need to understand money too!
It doesn’t matter how wonderful your product or customer service; if your business runs into financial trouble, you’ll be unable to pay the shop/office rent, pay salaries or enjoy any profits.

This article will be the first of several financial literacy lessons I’ll share with you to open your eyes to the dangers of poor financial management in your business. Let’s now take a look at five serious and common mistakes most entrepreneurs are likely to make when they start and run their dream small business…

1. Not Keeping Adequate Financial Records
Financial records are like temperature readings of your business. They provide important and invaluable information that acts as an advance warning system to alert you before something goes wrong. Most times, businesses don’t fail without showing warning signs and symptoms.
How else would you know that your costs are high and rising out of control if you don’t keep records of monies you’ve spent? How can you know that your goods are being stolen by your employees if you don’t regularly take stock? Accountability is a basic ingredient of success in any business (big or small). How can you be accountable when there are no records to prove it? How can any business succeed if it lacks the discipline to keep records? How can you know if you’re making profits (or losses) if you don’t write down or record your incomes and expenses? There’s just so much you can store in your head. Sometimes (and many times), your head may forget some transactions you made. But a little notebook, a file on your computer or a business management app will never forget.

Keeping accurate and up-to-date records of financial activities in your business is not just for your own sake. Should you require capital investment from banks and investors, you would need to first prove that your business is profitable and can pay back the interest and returns.
And how exactly do you prove that your business is profitable if you don’t have any records to support your claim?
Nobody wants to invest in a business that cannot account for the money it spends or makes. Trust has to be based on something and keeping good records of your business transactions is solid enough for trust to exist.
Don’t be scared; you don’t need to be an accountant (and you don’t need to hire one) to keep good records.
Keep it simple and basic. You can start out by recording the date, amount and some details about the transactions and you’ll be fine.
Fortunately, small businesses usually don’t have the kind of complex transactions that exist in large companies. If you can pinch your pennies right, your small business could one day grow into a big company that hires a team of accountants and financial managers to handle its finances.

2. Confusing Revenue With Profits
It’s very important that entrepreneurs understand the difference between these two terms.
Revenue (also known as Sales or Turnover) is the money that flows into your business from selling your products or services to customers.
Profit is the difference between money that flows into your business (revenue) and money that flows out of your business (costs).
Many small businesses suffer this fate. Their shops are always overflowing with customers; there’s a lot of money coming in but the business isn’t profitable.
High costs are usually one of the biggest reasons for a business with a high amount of sales/revenue but low or non-existent profits. It doesn’t matter how much money (sales or revenue) your business makes, if your costs are too high, you’re at risk of running a loss.
If you hire more employees than necessary (which means high salary costs) or take out a bank loan with a high and unfavourable interest rate, your business would likely bleed to death. The unfortunate thing is, it may look healthy on the outside, but it’s very sick inside. It will only be a matter of time before the business crumbles.

Why did the oil business that seemed to make a lot of money still fail?
Two reasons:
First, in the retail segment of the market, the profit margin (difference between the cost and sale price) of oil is quite small. So, although we sold large volumes to earn high revenue, the profit was little.
Second, we took out a bank loan at a time when interest rates were just too high. Whatever little profits that remained were wiped off by the high interest payments we had to make to the bank.
At the end of most months, we were making losses. Although the business was fun and our customers loved us, we had to quit.

Morale of this story: Don’t confuse revenue with profits. No profits, no business!

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This is not actually what kills them

The real deal that is killing small businesses is why they were started in the first place.. To make profit...

If you business has one primary goal of making profit and only profit then sorry it wouldn't survive in this 21st Century