Would you rather be the tortoise or the hare?
In a related article, “How not to manage your business and personal finances” I wrote about the Spenders and their business Printing Pain, and how through a lack of focus and self-discipline they landed themselves and their business in a financial mess. Their conduct is in many ways similar to that of the Hare in Aesops fable about the race between a tortoise and a hare.
The Hare was swift and confident and was soon far ahead in the race. He then lost focus and decided to munch on some cabbages and took a nap before the race was over. When the Hare woke up, he found that the Tortoise, crawling slowly but steadily, and with tremendous self-discipline, had won the race. "Slowly does it every time!" he said.
Contrast the Spenders with this case study, which is about the Tortoise* family and their manufacturing business called Wealth Manufacturing*.
Mr Tortoise is a full time employee of the business and manages the business. He often works extended hours and is responsible for sales, marketing, production, quality control and research and development. Mrs Tortoise is a part time employee and is responsible for the bookkeeping and administration. She spends the rest of her time during the week attending to the needs of their children.
Ten years ago the annual turnover and net profit of the business were R500 000 and R30 000 respectively. The annual turnover and net profit for the last financial year exceeded R5,0 million and R2,0 million respectively, which is quite an achievement for a family business.
Mr Tortoise has been very innovative. He designed and built a moulding machine at a fraction of the cost of an imported model. He also changed the focus of the business, which initially was the design and manufacture of moulds, which required highly skilled employees. The business now uses the moulds to manufacture the end product for customers using production runs and employees who are less skilled.
He also gave a great deal of attention to quality control. As a result, Wealth Manufacturing has built up a good name in the market place. The business does minimal advertising. Most of its customers are referrals.
Mrs Tortoise has always kept accurate and reliable accounting and administrative records for the business, using an off-the-shelf accounting package. They were at all times instantly updated about the financial performance (income statement) and financial position (balance sheet) of the business.
The Tortoises were in control of the business and accordingly were able to make informed financial decisions. Sales were invoiced on time and the outstanding debtors collected when due. Bad debts were kept to a minimum. Their suppliers were always paid on time, as were their taxes, thereby avoiding costly penalties and interest.
The Tortoises also managed their personal finances prudently and lived within their means. They drove moderately priced motor vehicles. They have been living in the same house for the past 10 years, and although the house has been modestly refurbished, the costs associated with relocating to a new home were avoided.
They have been debt free for the past few years. Whilst many others have been drowning in debt and struggling to meet their commitments due to the high interest rates, the consequence for the Tortoises is that they earn more from their investments. Recently they acquired their first luxury car without incurring one cent of debt.
The lessons from this case study are:
Success in business rarely happens instantaneously. It is invariably the result of focus, dedication and commitment over an extended period. In the words of Thomas Edison: “Many of life's failures are men who did not realize how close they were to success when they gave up.”
Personal wealth is acquired through financial prudence and discipline, and a commitment to save no matter what your level of income. Ten years ago the combined monthly income of the Tortoises was R5 000 per month. They spent less than they earned and settled their debts. Today they are wealthy.
Adopt an attitude of continuous learning and innovation. “Live as if you were to die tomorrow. Learn as if you were to live forever” – Mahatma Gandhi. By adopting this attitude, Mr Tortoise built a machine at a fraction of the cost which a supplier would have charged for a similar piece of equipment. The machine did not look good, but it got the job done and the quality was right. Many times we fill our lives with the bells and the whistles, all of which add to the clutter and the stress and fail to improve our lives.
Maintain accurate and reliable accounting records for your business. It can either be a manual system or computerised system. An off-the-shelf accounting software package will be suitable for most small businesses.
Look after and nurture your business and its employees, and they will look after you. As entrepreneurs we can change the world and help to make it a better place.
So would you rather be the tortoise or the hare?
*Please note: Wealth Manufacturing and Tortoises are not their real names.
The content in this article was provided by Robert Jewell (B Compt B Compt Hons MBA (Wits) CA (SA)) - Director: Client Services at Accounting for Entrepreneurs.
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