‘No one-size fits all’: Know how much funding your business needs

Running a successful business is more than about coming up with innovative ideas and creative concepts – crunching the numbers game is just as important.

When starting out, the right funding or lack thereof could either make or break your business.

While most entrepreneurs have a comprehensive blueprint and clear vision for their business, many often struggle to gauge how much funding their business needs.

Finding the right funding for your Small Medium-sized Enterprise (SME) is one thing, but knowing how much to ask for is another.

READ MORE: Finding the right funding option for your small business

Financial management skills

Echoing, FNB SME Lending product head Louise Naidoo said this was a common challenge among SMEs.

“While some businesses overflow with passion and product/service expertise, they may fall short in essential financial management skills.

“Without knowing the ins and outs of money matters like cash flow and planning, these businesses might find it tough to figure out how much funding they really need to keep the business going and growing.”

READ MORE: Mastering the money game: Financial tips for entrepreneurs

‘No business is the same’

When it comes to funding requirements, every business is different, which makes it difficult for entrepreneurs to make the determination based on the financial needs of other enterprises.

“There is no one size fits all, and SMEs have to consider their unique circumstances and business goals when determining the right funding amount,” said Naidoo.

“Funding requirements and the use of credit will vary based on business life stage [start, run or grow], operating cycles, growth plans, industry, and market conditions,” she explained.

Adding to the difficulty is the volatility of the business landscape, with fluctuating income and inconsistent revenue streams – making it hard to predict how much funding a business needs over a given period.

“This may significantly affect startups and seasonal businesses,” Naidoo said.

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Cash flow planning

Nonetheless, there’s light at the end of the tunnel – but only if you get acquainted with the finances of your business.

“Embarking on a smoother financial journey starts with effective cash flow planning. Cash flow is like the oxygen that keeps a business alive and running smoothly,” Naidoo said.

“It’s the money circulating in and out of a business, from income and expenses to investments and back, ensuring a continuous and healthy financial cycle,” she explained.

Meanwhile, a good working capital or business cycle is crucial to the smooth running of your business.

“The working capital cycle, or business cycle, is the length of time from purchasing raw materials to receiving cash from the sale of finished goods,” Naidoo said.

She noted that businesses may encounter challenges when they have to pay suppliers before generating enough cash from selling their goods.

“A shorter business cycle is beneficial as it helps businesses free up cash faster for other needs, while a longer business cycle requires more working capital to sustain operations, as cash is tied for a prolonged period.”

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Cash flow forecasting

Apart from cash flow projections, pursuing the correct form of funding is also a challenge for most SMEs.

Naidoo recommended possible practices entrepreneurs can adopt to get their business bank account funding-ready:

• Ensure cash is deposited into your business account: Having all business transactions in one place makes it easier to keep track of accounting records, income tax and audit requirements. It also makes cash flow forecasting easier.
• Embrace convenient banking tools for receiving payments: Adopting digital methods ensures fast and secure transactions, without the risk of robberies, fraudulent cash transactions, and high cash handling fees.
• Ensure the correct governance processes are in place: Financial reporting is important, hence investing in a good bookkeeper will stand you in good stead. Funders typically require certain documentation to confirm the business’s performance.
• Manage existing debt products to avoid overburdening business finances.

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