A Simple Guide to BAM Financial Basics

This is the ninth installment in our series on Starting a BAM Business

Even the most mission-driven startup needs solid financial management to survive and thrive. This article is here to walk you through the basics, helping you set up a financial system that’s simple, effective, and aligned with your BAM goals. Whether you’re in Nairobi, Jakarta, in the U.S., or anywhere outside the U.S., these principles apply.

Understand the Importance of Financial Management

Financial management isn’t just about crunching numbers or keeping the taxman off your back. It’s about making informed decisions that keep your business healthy and sustainable. In a BAM startup, where your mission and business goals are intertwined, good financial management ensures that you’re not only making a profit but also making an impact.

Why it matters:

1. Sustainability: Without good financial management, your mission won’t last long. It’s as simple as that. Sadly, the majority of startup businesses don’t make it for a full year; BAM companies are no exception.

2. Growth: Properly managed finances allow you to scale your impact as your business grows.

3. Accountability: You’ll need to be accountable to investors, partners, government, and your community. Having your finances in order is key to maintaining trust and transparency.

4. Excellence: One foundational principle of Business is Mission is to run your business to the glory of God and not in a shoddy way (1 Corinthians 10:31). Finances is no exception.

Set Up a Basic Accounting System

You don’t need to be a financial wizard to set up an accounting system. The goal here is to track your money—what’s coming in, what’s going out, and what’s left. Capturing this data regularly (weekly, monthly, quarterly, etc.) can help you see problems before they become disasters.

What you need:

1. A reliable accounting software: Choose something that’s user-friendly and suitable for small businesses. QuickBooks, Xero, or Wave are popular options. If you’re in a region where these aren’t available, look for local alternatives. Frankly, you can keep your books on an Excel spreadsheet or Google Sheets by keeping a keeping a record of your income (Daily Cash counts, copies of checks, etc.) and expenses (receipts) and entering them on your spreadsheet. Personally, I have run businesses with revenue nearing $1 million using nothing more complicated than a spreadsheet.

2. Bank accounts: Open separate bank accounts for your personal finances and your business. This keeps things secure, clean and makes accounting a lot easier. In some countries, such as the one in which we opened our first business, banks were not secure or safe; we ended up keeping our cash in a tough safe in our office.

3. Basic bookkeeping: Even if you’re not an accountant, you can learn the basics of bookkeeping. Track every transaction and categorize it correctly. There are basic introductions to bookkeeping available on line; for example, see https://youtu.be/pKpdibyljR4?si=JNhYaIDgTNpMoJJb You might want to hire a part-time bookkeeper if this feels overwhelming.

Create a Budget and Stick to It

Budgeting might sound boring, but it’s one of the most powerful tools in financial management. A budget is basically your financial roadmap—it shows where your money should go and helps you avoid unnecessary spending. It is, simply, a plan of how you will spend your money.

Steps to create a budget:

1. Estimate your income: Look at your past sales (if you have any) and forecast what you expect to earn. Be realistic. I recommend a month-to-month approach that covers at least 12 months.

2. List your expenses: Include everything—rent, utilities, salaries, marketing, supplies, etc. Don’t forget to set aside money for taxes. Be realistic on expenses. Avoid “happy selling” yourself. In my experience, startups spend a substantial amount of money in their first year that they never anticipated.

3. Prioritize: Determine which expenses are essential and which are flexible. In a BAM startup, you might also want to allocate funds for social impact projects.

4. Monitor regularly: Your budget isn’t set in stone. Review it monthly and adjust as needed based on actual income and expenses. Compare your income and expense statements (from your bookkeeping) to your budget.

Remember: A budget is only useful if you stick to it. Resist the temptation to overspend, especially in the early stages when cash flow might be tight. Be frugal and wise.

Understand Cash Flow Management

Cash flow is the lifeblood of your business. This is a confusing statement but it is true— you could think you are profitable but still run into trouble if you don’t manage your cash flow well. Simply put, cash flow is about timing—when money comes in and when it goes out. It is your bank balance or your cash in the shoe box that keeps your business going.

Tips for managing cash flow:

1. Invoice promptly: Don’t delay sending out invoices. The sooner you invoice, the sooner you get paid. I was a senior executive in a $3.5 billion company and we sent invoices out every single week.

2. Keep a cash or liquid reserve: Aim to have enough cash on hand to cover at least three months of operating expenses. This buffer can save you during lean periods when they come—and they will. In some countries, exchange rates and inflation make keeping large sums of cash in reserve a bad idea; in that case, look into certain easily sellable commodities (e.g. sheep, yes, sheep!) as a safer place to keep reserves.

3. Learn how to create, update, and regularly review cash flow statements: This helps you spot trends and plan for future expenses. If cash flow is consistently tight, it might be time to reevaluate your pricing or payment terms.

Quick tip: Stay on top of your accounts receivable (the money customers owe you). Consider offering early payment discounts to encourage timely payments.

Quick tip 2: Don’t extend credit or let people buy without paying. Cash payment a the time of the sale is a pretty good rule to follow, especially when you’re just starting out.

Plan for Taxes Early

Taxes are unavoidable and a follower of Christ will know to pay taxes honestly, but they don’t have to be painful. Planning ahead can save you a lot of stress (and money) down the line.

Tax planning tips:

1. Understand your tax obligations: This will vary depending on your country, but generally, you’ll need to pay income tax, VAT/GST, and possibly payroll taxes. This is an area in which a great deal of extortion occurs internationally. We will address the challenge of corruption in another article so stay tuned.

2. Keep detailed records: Good bookkeeping is essential for accurate tax reporting. Make sure you’re keeping track of all deductible expenses. Don’t trust your memory.

3. Consider hiring a tax advisor: Taxes can get complicated, especially if you’re operating in multiple countries. A good tax advisor can help you navigate the rules and minimize your tax burden.

Pro tip: Don’t wait until the last minute to deal with taxes. Set aside money throughout the year to cover your tax bill. If possible, make quarterly tax payments to avoid a huge bill at year-end.

Stay Flexible and Adaptable

Finally, remember that your financial management practices will evolve as your BAM startup grows. What works in the first year might need to be adjusted as you scale. Stay flexible and be willing to adapt your strategies as needed.

Key to success:

1. Continuous learning: Keep learning about financial management. Attend workshops, read up on best practices, and stay informed about changes in your industry.

2. Seek feedback: Regularly ask for feedback from your financial partners, investors, mentors, and team. They can provide insights that you might not see from the inside.

3. Review and adjust: Make it a habit to review your financial management processes at least once a year. Look for areas to improve and make adjustments as necessary.

Conclusion

Setting up financial management basics in your BAM startup doesn’t have to be daunting. By understanding the importance of good financial practices, setting up a straightforward accounting system, and staying on top of budgeting, cash flow, and taxes, you’re laying a strong foundation for your business. Remember, your startup’s financial health is crucial not just for your own success but for the success of your team and the impact you want to have.

So, take these steps seriously, but don’t let them overwhelm you. Financial management is a tool to help you achieve your goals, not a burden. Stay committed to your vision, manage your finances wisely, and your BAM startup will be well on its way to making a lasting impact.