Let’s focus a bit on the use of Money.
How do you manage money in a business as a SMME?
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Businesses SMMEs in most cases its one person, this one person is everything as we have said earlier on. Now let us focus a bit on how do you manage money in a business? Typically, when you are a small business owner when you make a sale the money comes to your pocket, you have got no one who knows that you have made this money, if you spend the money, no one will say to you, why did you spend the money, the money was for the business.
You can go and use the money and buy groceries because maybe you know tomorrow some other money is going to come in but the danger is when you look back after some time and you try to see what you have done in the past years. You may find that there’s nothing to show for for all your hardwork and no savings or growth of your business.
Save money that belongs to the business and not touch it, it’s for investments.
How do you create that financial discipline?
So, first policy is, first separate. Okay! have a separate business bank account and have a separate personal bank account, do not mix the two. If money is coming for the business let it go to the business bank account. We usually advise small businesses that the simplest way to ensure that you’re transparent and accountable to yourself first and even to others is to make sure everything goes through the bank, simple. So, we can talk about, you need to make sure you have got proper ledges and accounting systems and things like that, though these are important as well, as a discipline make sure nothing moves in cash.
Accountability and Good Governance.
How then can SMMEs create that accountability, and good governance; considering that most SMMEs don't have money to pay an accountant to do the books for them or subcontractor other people?
If cash comes in it must go to the bank first even if you have got an expense. Before you incur or pay for that expense, make sure it comes from the bank account. Why? You are creating an audit trail and a record and make sure you include sufficient narration so that you can tell where the money came from and where it’s gone.
So it goes basically beyond just making sure you have the right systems and accountabilities. As we are talking about someone who’s running a business on their own, maybe you may feel you don’t have the scale or the financial muscle to employ someone to implement the right systems and accountabilities.
Well… There are plenty of basic packages accounting packages that you can use, even Excel and even a book, if you have to write everything down or record everything. Periodically report on how much you have generated in terms of sales, how much you have expended and what’s your profit.
The danger that small businesses suffer, is mixing cash and profit; you may have cash in the bank but it may not necessarily be profit, you must know what exactly what you are tracking, both from a profitability and cash flow perspective.
Start with making sure everything has an audit trail with every transaction, to put it simply.
To graduate from there is now to put in the system i.e., a payment voucher before any money moves, there must be some documentation, have some policies in place to govern how you undertake transactions. It’s also important to get some external people as you grow and come to afford their services, nowadays you can out source your accounting, you can get any auditor to come and help you at a very affordable cost.
This is important because one day you may want to raise finance and the bank will say, let us see your audited accounts, if you never kept the record, it would be terrible for you and your business to then said I don’t have audited accounts. Much rather prepare for that before you actually need it and make sure everything is in order so that when the time comes you then go forward.
The other critical thing and why this accountability is fundamental, you have to remember that one of the areas that can actually cause your business to fold, is the inability to effectively manage the tax risk.
Accountability is Fundamental to management of Business Money.
So how does a small business deal with the cost of financing options?
How do you manage money in a business you are transacting you are generating a record, meaning there is a liability that is due to the authorities (SARS). So, if you are supplying a company and that company records that it paid your company, it means the authorities are expecting a certain return or commitment from your company.
If they do not receive this they will start to inquire what happening here? And when they come down on you, you will have a problem because when they come down on you and they demand what is due to them plus interest and penalties your business can cease to exist. So, in actual fact doing things the right way may seem costly at first but in the long run it actually counts and helps to on sustainability.
What’s the best way to go about finding an investor or partner?
Okay! This speaks to control ownership, right? because the moment you start bringing someone else into your business, you’re starting to dilute, but what are you diluting exactly? Are you diluting the vision of the organisation or are you simply diluting its ownership? So the first thing is are the goals outlined, do you have a common vision of where we want to take this business, do we have a common set of philosophies, is our culture similar?
These are just some of the few basic things that we can share for now and hopefully you got a number of nuggets.
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