How SMEs Can Set Smart Goals...And Crush Them

Start your business. Be your own boss. Quit the 9-5. Entrepreneurship is the newest trend in this generation. Everyone wants to start their own business. According to the SMEDAN National Survey of 2017 show that there are 40 million SMEs, accounting for over 84% of jobs in the country. However, it is notoriously hard for an SME to survive for over 10 years with 50% of SMEs failing in the first year, and 98% of that half failing in 10 years.

A lot of founders have good intentions for their SMEs and many of them have even viable solutions to problems that people face and complain about daily. However, a business is the sum of many moving parts and it’s necessary for all these different parts to work in tandem for the business to grow. Founders of SMEs are often skilled at the technical aspect of the business, however they often lack the financial skills to grow a business.

One of the basic skills a lot of SMEs lack is financial discipline. As most SMEs are self-funded, a lot of founders find it difficult to separate company finances from their personal finances. This is further evidenced by an abysmal amount of incompetence in accounting and bookkeeping from the average SME founder. Others outsource this work to their employees, however they don’t know enough of financial management to notice and curb fraud in their organizations. As the first few years of a business are the most crucial to the business’s survival and thriving, steps must be taken to educate oneself about financial management and discipline.

Let’s take a look at some best practices when it comes to building financial discipline as an SME:

Create a Budget

Every business must have a financial budget. According to Wikipedia, a budget “is a financial plan for a defined period, often one year. It may also include planned sales volumes and revenues, resource quantities, costs and expenses, assets, liabilities and cash flows.” A budget enables an SME to plan for its future and adapt its expenditures and capital-raising ventures for optimal results. Without a clearly defined budget, the company’s finances will be dictated solely by the whims of the owners and be at the mercy of market forces. A budget should be meticulously created under professional supervision to ensure it doesn’t contain wild guesses and unrealistic expectations. Having a clear financial plan and sticking to it will greatly increase the longevity and growth of the business

Don’t mix Business and Personal Finances

The business is a separate entity from its owner and should be treated as such. Although most businesses are primarily funded by the owner, certain guidelines must be put in place to prevent mixing the two. First of all, the owner must:

a) Pay yourself first: As the founder of an SME, you are still an employee and need to have a clearly defined salary structure. This prevents the owner from dipping her hand into the wallet of the business for personal use, crippling the organizations’ ability to survive in the long term. It also prevents the owner from bearing all the financial shortfalls, which will eventually lead to a lack of zeal for the work, and inability to produce the best results in the organization

b) Have a separate account for the company: Every company should have its own bank account. Using a personal account for your business prevents the business from enjoying the benefits and concessions having a corporate account comes with. This also prevents one from applying for loans and grants to grow the business. This also makes it hard to distinguish the company’s finances from that of the owner and can be a channel for fraud.

c) Involve a third party in the finance of the business: Human beings are creatures of habit and some entrepreneurs may find it hard to stop mixing business and personal finances. Having a third party as a signatory to the company accounts, be it an employee or family member, serves a deterrent for the founder to wreck the business as a result of rash business decisions and financial indiscipline.

Make Frugality A Habit

The statistics according to Forbes Magazine, show that one of the leading reasons of SME failure is lack of sufficient capital. However, this may be more of inability of business owners to grow their business with capital already gathered. This is evidenced through the fact that businesses start up in very similar industries with similar capital base, and yet get very different results. SMEs need to be observant and close up holes in their financial basket.

For this to work, unbiased evaluation of the company’s expenses need to be carried out regularly. While a lot of SMEs are very critical about of tiny leaks, they often accept major expenses because they believe such expenses are necessary in that industry. To counter this, one must realize that SMEs are uniquely designed to be innovative, as due to their limited capital and resources, they have to question the status quo and adopt new methods and ideologies to get equal or better results.

As earlier mentioned, SMEs provide over 80% of employment in the country. We therefore see that these Small and Medium Enterprises are the lifeblood of every nation. If every SME can adopt these strategies and walk in financial discipline, it will bode well for the economy of the world.