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Small and Medium Enterprises (SMEs) play a significant role in the growth of South Africa’s GDP.
However, it is concerning that most small businesses in the country fail within the first few years of operation.
Kevan Govender, Regional Investment Manager at Business Partners says the large proportion of startup businesses in the country fail within their first five years of operation. The failure could be attributed to a lack of proper financial management.
“The long-term solution to building a small business ecosystem that is resilient enough to withstand market volatility and tough economic circumstances, therefore lies in fostering greater levels of financial literacy.”
Govender says since launching their quarterly SME Confidence Index, they have always found that the consistent main challenges faced by small businesses involve finances, with cash flow and access to finance consistently occupying the top positions.
Similar challenges were found in the latest SME Confidence Index released early this year showing that financial challenges are still present. He believes this highlights how important is it for entrepreneurs to invest time, effortt, and resources into management skills.
“By applying a few simple but effective best practices in terms of saving, debt management, budgeting, spending and investing, any aspiring business owner can charter their way towards a profitable future.”
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Govender says to run profitable operations, spending needs to be optimised, investments need to be made wisely and debt should be managed responsibly. Apart from knowing basic financial concepts, it is important to make smart and informed decisions.
“Furthermore, financial literacy was found to play a key role in helping business owners select, use and manage their financial assets and make sound decisions.” He adds that there is a direct link between higher levels of profitability and long-term success for SMEs.
The Index has also revealed that SMEs need funding to survive and thrive beyond the formation stages. However, financial literacy is important to learn how to handle this funding.
“In a rapidly changing economic environment, being financially literate is crucial for adapting to new challenges and seizing opportunities, ultimately ensuring long-term sustainability and commercial viability,’ says Govender.
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He advises entrepreneurs to invest in academic courses on topics and themes related to financial management. Investing in academics will give valuable lessons for professional and individual life. “This can, in turn, inform further education and training endeavours as entrepreneurs work towards becoming more holistically informed.”
He is of the view that gaining an understanding of the business’ financial standing by going through reports and balance sheets, will result in boosting one’s financial literacy. Over the years there has bhave developments of tools and cost-effective software that entrepreneurs can use to gain betta er understanding of accounting tasks.
“Investing in this kind of technology can help business owners save time and money, while gaining access to the information they need to understand their overall financial performance.”
The best practice is for entrepreneurs to regularly assess financial statements and performance metrics. By making regular financial reviews a habit, they can identify trends, flag any problems before they escalate and adjust their strategies accordingly.
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He highly recommends entrepreneurs to find a mentor who will offer advice, guidance and a second opinion. “Mentors can offer practical advice on managing finances, optimising cash flow, and making strategic financial decisions, drawing from their own experiences and expertise.”
A mentor will help entrepreneurs avoid common pitfalls by sharing lessons learned from their own successes and failures. “This firsthand knowledge can be more insightful and applicable than theoretical learning, as it is grounded in real-world scenarios.”
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