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It’s no coincidence that three of the four greatest challenges faced by South Africa’s small businesses relate to finances. According to the most recent Q4 2022 SME Index Survey, conducted by Business Partners Limited, these challenges were economic conditions, funding and cashflow. Furthermore, research published by the University of the Western Cape found that 70 percent to 80 percent of South African start-ups fail within their first five years of operation. In this tough environment, sound financial management is the single most important aspect of running a small business. The below list includes some of the main financial hurdles that face South African entrepreneurs, accompanied by tips on how to overcome them.

1. Diversify your payment options

For small businesses to succeed in a financial landscape, that is ripe for disruption and provides fertile ground for innovation, choice is no longer a luxury but a necessity. Today’s consumers expect the same level of choice and convenience at every touchpoint.

Small businesses simply cannot afford to lose a sale due to not having the right technology or payment options available. There has never been a better time to invest in payment options such as ‘scan-to-pay’ or QR codes, ‘tap-to-pay’ and other contactless methods. In addition, small businesses should consider investing in online credit facilities that offer a large degree of flexibility and include options such as ‘buy-now-pay-later’ or manageable repayment terms. In light of the current economic uncertainties, this will become increasingly important and will enable greater access to more South African consumers.

2. Maintain a prudent financial reserve for emergencies

The devastating impact of the COVID-19 pandemic, the July riots of 2021 and more recently, the severe flooding in KwaZulu-Natal, brought to light the importance of being prepared for the unexpected. Small businesses are particularly vulnerable to disaster – many do not have the financial resources or appropriate insurance to recover from extreme weather events, theft, public liability claims or reputational damage.

To mitigate the many risks that lie ahead, business owners should prioritise setting up an emergency fund. A portion of your small business’ monthly revenue should be allocated to this emergency fund. Saving up for a rainy day could make the difference between whether your business stays afloat or sinks when the unexpected occurs.

3. Use credit wisely

Entrepreneurs may feel weary about the prospect of applying for credit to fund the next phase of their business’ growth, the purchasing of new equipment or the launch of a new product or service. However, debt is not always a bad thing.

Taking out a manageable loan can give your small business the capital injection it needs to achieve an important milestone or to elevate it to the ‘next level’. And, by paying debt off consistently and on time, you will be able to build a positive credit history which may help you to obtain more credit in future. If credit is budgeted for correctly and used efficiently, it can be a powerful tool for boosting cashflow.

4. Implement a payment policy

One of the biggest setbacks that South African small businesses face is clients not paying on time. In fact, according to the Q4 2022 SME Confidence Index, local business owners feel six percent less confident that they will be paid within the stipulated time frame, when compared with the previous quarter.

Putting a payments policy in place may be the best way to solve this issue. These policies could impose late payment penalties. Likewise, business owners could consider offering an early payment incentive – either in the form of a discount, additional ‘bonus’ stock, or a value-added service like free delivery. When establishing a relationship with a client, this policy should be communicated upfront. This can be done via a written contract to ensure that both parties are aware of their obligations and remain equally accountable to them.

Learning the basics of financial management is always an investment well made. This holds true even in small businesses where the founder does not have to fulfil an accounting or financial management role. Having clear oversight of your small business’ key metrics and upskilling yourself in this area will go a long way in helping you make informed decisions and secure your business’ financial wellbeing.

About the Author: Ben Bierman

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Ben Bierman has been our Managing Director since 2015. He joined our company in 1990 and has risen through the ranks occupying various positions ranging from being a management accountant, Head of Information Technology and Chief Financial Officer. Ben is an avid reader, enjoys classical music and being in the outdoors including for hunting trips. He is our go-to-spokesperson for our SME Confidence Index, SME sector policy and trend matters, and business leadership articles.