Monday, March 9, 2009

Business Money Management: Bam Aquino’s Interview with Eduard Francisco

As promised over a month ago, here’s Bam Aquino’s interview with Mr. Eduard Francisco of FINEX. It’s a bit incomplete. I missed the first few parts of the interview. My apologies, to my dear readers.

BAM AQUINO: Cashflow, that is something that an entrepreneur, I see probably, don't know that it's an important thing but it's not the one focused on in the book; it's not the one focused on in school. Tell us what's the importance of cashflow in the business.

EDWARD FRANCISCO: You're right. People think about profit. Sometimes that's a misnomer because the reality is...In fact, I guess, in the financial crisis, investors are not looking at profitability anymore of a company; they are looking at the ability to generate cash.

MONEY MANAGEMENT: In a crisis, investors are not looking at the profitability of a company but its ability to generate cash.

Because there are a lot, I guess, in the accounting side, non-cash items or things below the bottom line that are really important in terms of cash collections. Like even managing working capital, you like to manage that well.

BAM AQUINO: How are you able to convert all of these big concepts, financial concepts to, you know, the small business that you’ve run, for example, I mean for entrepreneurs it’s different when you read it in a book or pick it up in class versus actually applying it in your actual business?

EDUARD FANCISCO: You’re right because of course we go to school, we read books, but then at the end of the day it’s basics lang eh. In fact this year, we should all be going back to basics. It can be as simple as making sure that you manage your receivables, you always follow-up when something is supposed to be paid, you just make sure that you balance your cash at the end of each day sa kahera, even if it’s non-collecting na cash, and try to make sure that you pay your suppliers on time; you make that all you inventory nakabilang para at least, when you reconcile everything it’s there. It’s doesn’t have to be something fancy but as long as you know where things are, that should help you in today’s times.

MONEY MANAGEMENT: Back to basics: Make sure that you manage your receivables; balance your books; pay your suppliers on time; update your inventory.

BAM AQUINO: Is it true Ed that a lot of things fold-up because of poor cashflow management more than a poor business plan, for example?

EDUARD FRANCISCO: Yes. Because there are a lot of companies that do not push through, not because for lack of planning, but, in fact, I think, the problem sometimes is that they grow too fast. And when you grow too fast, it’s a good problem to have but if you don’t have enough cash, kung maiksi ang pisi mo, mauubusan ka. So you have to manage the cashflow.

MONEY MANAGEMENT: Many businesses fold due to poor cashflow management. Always have a financial back-up.

BAM AQUINO: And usually when cash is a problem, would, should you go to a bank or should you borrow? What should be the system there?

EDUARD FRANCISCO: Ok. That’s a good question. Ideally we should always have back-up financing. But the reality also for startup companies is bank financing is not yet available eh. Usually the source of cash for a startup, let’s say you’re a retiree or an OFW, it’s your own money. And then in addition you should have a backup, you should ideally have money from, maybe you get an advance from your “mana,” or you borrow from your mga kamag-anak, from your Ninongs, Ninangs. You should have that buffer kasi nga mauubusan ng cash at one point.

BAM AQUINO: And that buffer he tells is another topic for another show kasi that also pretty complicated. Talking about your personal finances, it’s sort of a rule that you should never mix your personal finances and the company’s finances, but as a startup, it’s inevitable that you do that, right?

EDUARDO FRANCISCO: Correct. It’s inevitable. What you have to do is just be ready to, I usually tighten your belt. Because for example you’re an entrepreneur; you put your nest egg into this business, you make sure that you agree with the family that certain cost, you only manage at a certain cost; you do not suddenly get advances from the company to have expensive dinners or trips or to buy a new PSP or iPod for your kids.

BAM AQUINO: Talking about personal finances, what part of your business should you put into savings or retained earnings, and what should you actually liquidate for you, for example?

EDUARD FRANCISCO: Sure. I guess ‘yun nga, you set up a budget at the initial stages palang, you manage that budget; you should not pull out any money if you can, that’s the ideal scenario. Because if you have a successful business, you want to plow all your earnings into the company. It is cheaper to plow it back than to borrow money kasi. And that makes he company stronger.

MONEY MANAGEMENT: If you have a successful business, you may want to plow back all your earnings back into the company to make it stronger.

BAM AQUINO: Is there a, like a rule, on how much savings you should put in? ikaw 100% ‘di ba? But there are some people who start their business, that they don’t have salaries, they’re just hoping na, kung kumita dun lang sila kukuha ng, you know, for themselves. Is there a rulethere, or maybe you should just give yourself a salary?

EDUARDO FRANCISCO: I agree with you. I think I prefer that having a salary. At least it’s a minimal salary muna in a startup stage. Don’t make naman super malaki because the company is not making money yet. You get a salary. You make your budget, household budget based on the salary you’ll get, minimal. As it becomes more profitable, you can increase it. And all the excess profits you retain as the company gets to the initial humps, then you probably can take dividends out already.

BAM AQUINO: Let’s say for example Ed, you have your retained earnings and I know you’re the Head of the BPO Investment Corporation , so would it be wise for you to invest that money again, especially these days that everyone ‘s saying na you know, medyo nakakatakot to invest in anything, at least in financial instruments, no. so is that advisable if you have some retained earnings to invest it again in something?

EDUARDO FRANCISCO: Yup. That’s also good. If let’s say, you don’t have the money to grow your business, medyo it’s maturing o there’s no need, you can take out some of the money, and you’re right, put it in a safe investment. It’s up to you naman because if you’re aggressive, if you see other good opportunities in other start ups, why not, if you’re diversifying. If you want some certainty then you put it in good banks, para at least, or government securities para may, you can sleep well also.

BAM AQUINO: For entrepreneurs, basically Ed, do you have, like, some tips, final tips for them on managing their money and running their business?

EDUARDO FRANCISCO: sure. I think the key of course is having a business plan; execute it well; keep your eye on the ball; don’t lose track; but also have longer cushion, long pisi. Be patient because these things are not suddenly goldmines an sometimes you try to pull out the plug but in reality, if you stay in longer, you’ll really succeed. And I guess, at the end of the day, you should believe in somebody up there who will support you.

MONEY MANAGEMENT: The key to a successful business enterprise is having a good business plan and executing it well.

BAM AQUINO: Who will help you out, ‘di ba? Ed, in your own experience, for example, in Little Gym and your food processing company, maybe you can share with us of your experiences there, in running the money management matters in those companies.

EDUARDO FRANCISCO: Basically, at least, corporate transparency, even at the SME level is important. So you discuss a lot with the Board, you talk about the weaknesses, the advantages, the risks. But at least you discuss them. It’s good to know so you know kung anu ang pinapasukan mo. And then at the same time, then just have to work well together, at least, we plan, and then we also visit, it’s a good, really good to get a sense of how the traffic is, when you have a store, you visit, you see what it’s like, you talk to the people para you always, you’re feet is always on the ground.

BAM AQUINO: Do you have a sort of, parang schizophrenic ka ba when it comes to being the corporate guy and being the entrepreneur or are you able to sort of put things together?

EDUARDO FRANCISCO: No. It’s very different. In fact, I’m sure your viewers have the same concern e. some of the retired corporate people have always been on the other side. They always had long deep pockets. Now it’s your own money already. So you really have to be more careful.

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