Financial architecture: How well do you understand it?

The Growth Accelerator Malawi cohort held their fourth workshop which focussed on Financial Architecture. This particular workshop challenged them to consider how they currently address cost, pricing and revenue in their businesses and start thinking about how this can be transformed into a more systematic, informed and synchronized process.

Many of the entrepreneurs shared that most of the approaches to these financial processes has been haphazard and based – almost exclusively – on competitor behaviour. Some of the deeper topics embedded within the workshop were around understanding break-even points and what one can do to drive revenue in their venture. Cost structures for products and services were unpacked and related back to the Value Architecture processes identified in the previous workshop. Likewise, the challenging process of working out how to better drive revenue required reflection on the Customer Journey Map from the workshop they did on industry and competition.

The cohort had an opportunity to listened to fellow entrepreneur Daniel Dunga who is the Chief Investment Officer at CDH Investment Bank in Malawi who shared insights from his journey and experience. His passion is to support SME’s and start-ups in attaining a better handle on how to manage their finances and – to that end – is due to publish a book on the same topic. He delivered a 9-point talk to summarize the principles around how SME’s and start-ups can achieve this better management of finances, summarized as follows

  1. Obtain financial literacy
  2. Know how money works and grows: Money always has a price and there is no such thing as “free money”. Learn to invest early.
  3. Understand the Business Entity Concept: Your business should not be you but – rather – a separate legal entity
  4. Develop financial discipline: This can be roughly defined as the ability to say no to money when you do not need it to grow your business and the ability to choose not to spend unplanned money from your business when you can.
  5. Be able to manage cash: Differentiate between cash and profit
  6. Be able to manage working capital and debtors: Find your own formula of how the combination works in your business
  7. Be able to manage borrowed money: Stick to the purpose
  8. Be able to manage credit within your cash-to-cash cycle: Chase credit repayments and have realistic predefined parameters of how far you can bend as a business
  9. Prepare to manage your growth: Allow your business to grow organically and do not force it without the required capacity in place because then you run the grave danger of overtrading

The main point being driven home to the cohort was that as entrepreneurs they need to know the growth potential of their businesses from day one and use that vision as a compass that will determine their behaviour at different financial cycles/stages which is a strategic barometer for their potential to become profitable and remain sustainable


Article by: Postar Chikaoneka – Project Catalyst, Malawi

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