“How’s business?” I asked. “Fine” he smiled. “Is it profitable?” “I think so: I’ve still got some money at the end of the month.”
Some small business owners,Joseph, know where every cent is coming from and going to. Others just don’t have a clue. Which means that they have no idea if their business is growing, sustainable or going down the drain. It’s no wonder then that a SAICA SMME Insight Report notes that “the most difficult barriers to starting a business, according to SMMEs, is the difficulty accessing finance ...” I think that they’ve got it wrong. My experience tells me that the twin challenges for SMMEs are: getting paying customers and managing their finances. Obviously, it is imperative that paying customers should be the primary source of funding for SMMEs, but that topic is covered in another article.  More importantly, poor financial literacy is a serious challenge for numerous South African business owners. As financial expert, Precious Mvulane recently pointed out: “One of the biggest mistakes entrepreneurs make [is to] confuse profit and cash flow.” It’s really not their fault that they have that misperception. A history of excluding the majority of South Africans from business, coupled with a still-appallingly poor public education system, conspire to ensure failure for all but a few street-smart SMME owners. What can be done about that? We can start by understanding where we fit into the bigger picture of South African businesses. In a recent IBASA presentation entitled Wearing Three Hats, Tim Holmes of Sirdar Group, explained that “Most businesses start as a craft. The business is about the knowledge and expertise of the individual, with the entrepreneur becoming a master craftsman…” It takes a mind-shift for the craftsman (the cabinetmaker, plumber, attorney, accountant, designer, coach …) to no longer see him or herself as a jack-of-all-trades (shareholder and director and manager) but, if the business is to grow, rather in a role in the company which can operate independently from him or her. While the SMME owner is wearing all the hats, s/he is also personally responsible for the business’ financial management. Even if a bookkeeper ‘does the books’, the business owner still needs to be able to understand what the numbers mean for the present and future health of the organisation. And that becomes critically important when the business really does need funds to grow. Why? Because the lender has to make some important decisions based on some pretty sound facts before parting with their investors’ hard-earned money. First of all, as Jeremy Lang of Business Partners, stated simply: “… the entrepreneur is of absolute importance to us. Backing the right jockey for the business is absolutely key. If you get that wrong, the business, as good as it may be in isolation, may be at great risk.”  So, what should you, the jockey, do to ensure that your application for funding is successful? Astute and entertaining SME Banker at Absa, KeaObaka Mahuma, explains “how to prepare your business for access to finance” There are seven essential criteria:
Affordability: “will the business be able to provide the investors in your business with a return? … we have to look at you as the entrepreneur, and look at your business and see if there is affordability” Behavioral traits: “if you couldn't handle at thousand Rands, you will be worse with a million Rands …” “… behavioral economics tells us … the way somebody has behaved in the past with how they've handled their money, or the money of the business, is the way we can expect them to handle the borrowed money …” Certainty of Cash flow: “debt is not the preferred way of financing a startup, the simple reason being that the cash flows of a startup are not certain” “… grant funding these days is available, enterprise development funding is available, you can borrow from your uncles and your friends and everybody else just to get the business to a stage where the cash flows can be predictable …” Delivery capacity: “… do I have the management capacity, do I have the management team, do I have the systems, do you have the processes?” “… if you’re not going to deliver, you’re not going to get paid, if you’re not going to get paid, you cannot service your debts … so we’re going to spend time looking at your ability to deliver.” Expertise and experience: Can you “confidently and without any shadow of doubt say: I can do this, I can do it with my eyes closed? Because then you are able to give your customers the consistency of performance and guarantee them that they will get what they have asked for” Formal support programs: mentorships, coaching, consultants, technical support or business support. “You have to be able to say: Yes, I don't know, but I've got this formal support that will help me to deliver, so that there is no performance issue.” “… if you can perform and you’re doing work for the right client, it's just a matter of time before you get paid” Governance: “… are you registered for all the taxes that you’re supposed to register for? Are you following the legislation in your industry, are you making a separation between your personal and business account?” “… nobody wants to lend money to any business or an institution that cannot tell the difference between a personal account and a business account.”  Once you have met all these criteria, that’s where Darlene Menzies' FinFind comes in. This online tool matches businesses with the appropriate finance based on the information that the entrepreneur provides. FinFind will find finance options that the applicant might not even have been aware of. What a pleasure. Rick Ed Mentor, trainer and business advisor at DoBetter.Business
| 
Comments