SME Financing is the most important yet least discussed topic of the SME world. Although it is difficult to ascertain the statistics of small businesses all around the world, it is believed that the total number of SMEs stands over 400 Million. With more entrepreneurs joining the race, the number of SMEs is soaring up with each passing day.
However, not every SME joining the rank becomes a success. According to the recent reports, over 70% of the new startups fail in their initial year, and among those 29% of the ventures fail following lack of funding.
Whether you are running a small venture or managing a billion-dollar business, financial management is the foremost factor that determines your growth and business success. Most successful SME owners have declared financial management the ‘heart of every business.
We have designed this SME financing guide for those, who have a dream to pursue their business but are complete novices to manage the finances of their new venture. Here is a detailed breakdown of all important aspects of SME Financing.
7 SME Financing Tips
1. Manage Your Cashflow Statements Wisely
Cashflow statements help you keep track of the money that ‘moves in’ and ‘moves out’ of your business over a specific period of time. The cash flow statements enable an SME owner to understand how much income he is generating as compared to his expenditures.
If your cash flow is positive, you are on the right track! Think of the possible ways you can retain the positive cash flow. On the flip side, if your cash flow statements are showing a negative balance for a longer period, you may have to change your plans.
For new ventures, it is suggested to keep a monthly record of your cash flow. You may even track your cash flow on a weekly and daily basis to manage your finances well.
Cashflow statements are the most effective accounting documents that help you determine how exactly your venture is performing. It is especially in the early days of your business when you have to tackle several expenses while you don’t earn enough income. In this phase, make sure you have a temporary source of income to finance your expenses until money starts flowing in.
2. Take Care Of Small Accounting Basics
All registered companies are bound to have a business account. If you are a sole trader, you might not need to retain a business bank account but having one will help you keep your finances in order.
Another pro tip to keep your SME financing aligned is to invest in cloud accounting software. Doing so will help you save the cost of hiring a professional. Quickbooks, Xero, and FreeAgent are some of the popular accounting software that will help you fulfill your financial obligation.
But if you have enough resources, you are advised to hire a professional accountant so that your accounting and tax obligations will be met efficiently.
3. Manage Your Expenses Against A Planned Budget
If you have failed to plan well, remember that you are planning to fail. The reason why people fail in SME financing is that they do not plan before taking important business decisions. Especially, when it comes to SME financing, business owners do not plan their budget considering the amount they are expected to payout.
Thus, what is important for SME owners is to map out the expected expenses and once you have come across that payment phase, compare your expected figures with the actual ones. Review any variances and figure out where the extra charges are incurred and make changes accordingly.
A well-built budget can be a vital element for the success of an SME. A well-planned budget can also help you get a clear picture of your company’s financial health.
4. SME Business Loan
Small business owners can rely on debt financing in the initial phases of their business, but SME business loans can end up being a heavy burden in the long run. If you are planning to expand your small venture or if your cash flow statements are showing a negative figure, you can debt finance your venture.
However, too much debt can force you to shut down your shutters. So, here are some tips to save your business from becoming bankrupt.
- Try to cut off your costs. If your company owns an unused equipment or space, consider using it productively or sell it off.
- Talk to your suppliers about any possible discounts and ask your customers to pay quickly.
- Be honest with your lenders and talk about your company’s health openly. Request them for lower interest rates or you may also ask them to restructure the payment options.
- Avoid extra staffing and inform your employees about the cut back on overtime.
5. Technology Is Evolving Rapidly – Invest In It
Using traditional spreadsheets to track your finances or using conventional marketing techniques can prove to be more time taking and costly. These may also not provide you with your desired results so invest in the latest software that will help you meet your desired results easily while cutting off your extra costs.
From your email and productivity campaigns to accounting and marketing tasks, you can handle all these important tasks using the latest software.
This latest technology will also be helpful in tracking your overall performance thus can be really beneficial for the growth of your venture.
6. Personal And Business Finances Must Be Handled Separately
Another wise rule in SME financing is, to handle the personal and business finances separately. This will shield you from your personal liabilities.
Although you might sign personal guarantees for leases and loans in the early days of your business, don’t delay shifting those liabilities to your venture. If you are delaying in categorizing your personal and business finances, you might be held responsible for any debt incurred in your business.
7. Follow A Good Billing Strategy
Alongside all the above SME Financing Tips, managing bills is another vital element. Cash tied up in your pending invoices may create hurdles for your cash flow statements. Thus, be creative with how you bill your customers.
Make sure your client pays the bills timely. If they are not paying bills timely, offer them discounts and make follow-up phone calls. Remember, unpaid invoices may also result in the failure of your business.
Also Read 5 Best Finance Tips For Your Personal Life To Follow
The Last Words
To best manage SME financing, plan ahead of your debts, give yourself a salary to keep your business and personal finances separate. Also, make sure to pay off debts timely, recover all the unpaid invoices in the earliest possible time and keep an eye on your ROI.
