The SME Guide to Understanding Your Financial Health

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The latest guide in our Business High Five series, The SME Guide to Understanding your Financial Health, is an overview of how you can improve your business finance operations.

 

Download our complete guide to Understanding Your Financial Health

 

In this guide, your SME will be able to make use of insights on:

 

  • The Importance of understanding your financial health 
  • What does financial health look like for SMEs 
  • How is SME financial health measured 
  • Common mistakes to avoid for the best possible financial health
  • Services, Tools and Tech available to help

 

 

The Importance of understanding your financial health

All the decisions you’re making for your business impact your bottom line. It’s important to regularly review the financial status of your business to make sure you’re on the right track and to help with future decisions.

When a business is financially healthy it’s more likely to succeed. Every business needs internal financial controls to help ensure its money is properly managed. While outsourcing experts and using financial technology can be a good idea, it’s also best for you to know how to protect your bank account and your assets. 

 

What does financial health look like for SMEs

The “financial health” of an SME is open to interpretation, depending on the industry, the stage of the company’s journey or the challenges it has faced. But there are some proven metrics that business owners, leaders, investors and other stakeholders can use to objectively assess the health of any company. Implicit in the financial health concept is the question of whether a business has “healthy” income, cash flow statements and a sound balance sheet.

 

Related: 5 Reasons why access to funding is important 

 

 

How is financial health for SMEs measured

 

There is no standard set of metrics for determining an SMEs financial health, as most small businesses are privately held and are not required to release official financial results to the public. The good news though is that there are some well established methods to measure a smaller organisation’s health. Learn more about the most important indicators by downloading our latest guide

 

Try to avoid these common mistakes for the best possible financial health

 

  • Lack of cash reserves
  • Not having a cash flow forecast 
  • Not having a margin of safety between borrowing and debt servicing 

See more here.

 

Related: 4 Ways to improve your business’s cash flow 

 

Services, Tools and Tech available to help

As a business owner and entrepreneur, financial management may not be your area of expertise. This is why it’s advisable to consider using technology partners who can simplify, and often automate, specific tasks. It can also be worthwhile investigating local support service providers to outsource the more complex or labour intensive tasks to.

 

Download the full SME Guide here.

 

What can 60 days of cost-free* funding do for your business? 

To help SMEs get the funding they need to grow their business sooner, rather than later, we offer a 60 day delayed repayment option to all first-time customers. So if you apply for funding today, you won’t have to start repaying for 2 months.  If prompted enter promo code LULA when applying.

 

5 Reasons why access to business funding is important

5 Reasons why access to business funding is important

Reading Time: 4 minutes

Running a business is a long game that requires flexibility, adaptability and money. To keep it running in the right direction and meeting your growth trajectories is an ongoing commitment. Just as you’ve gathered the funds to get started or your profit is looking good, there comes occasions when extra funding is needed. It goes without saying that access to funding is vital for your business. Particularly funding that can keep up with needs intrinsic to your industry changes, challenges and requirements. Here are 5 reasons to keep in mind on why access to funding is important for your business.

 

1. Research and development
2. Fast access to funding helps secure cash flow
3. Good liquidity helps SMEs trade through turbulent time
4. Funds on tap allow businesses to respond quickly to growth opportunities
5. Unforeseen costs

 


Research and development


While not every business needs research and development in the earlystages, every business needs to stay relevant and innovative. Especially SMEs because they have to keep up with unexpected challenges and competitors with better resources. On the other hand many business owners still rely on thorough research to get ahead of the competition, often leading to having to finance the process. Ultimately, research and development is necessary for accelerating innovation and sustaining relevance, and it requires funding.


A few meaningful ways to start your R&D funding include approaching venture capitalists, seeking government assistance, alternative lenders such as Lulalend and using crowdfunding.


Fast access to funding helps secure cash flow 

The money that moves in and out of your business is important. Any sudden changes can impact your business negatively. Which is why positive cash flow is so important. If it dries up it’s difficult to recover and this inevitably affects all aspects of your business. Anything from seasonal slowdowns or recessions can strike at any time and it’s important to be prepared. With fast access to the right funding you’ll be able to keep a positive cash flow problems arise. Consider flexible options such as Lulalend’s revolving credit facility which is useful to business owners across all industries. This allows you to keep up with the kind of cash flow challenges that affect your business directly without applying for funding every time. 

 

Related: Understanding business credit assessments

 

Good liquidity helps SMEs trade through turbulent times

SMEs generally don’t have big cash reserves to fall back on, so when sales drop they need a safety net to meet day to day operating costs. Ideally a business should have anywhere from a month to six months of cash on hand in case of emergencies. Liquidity requires having accessible funds and together with cash flow, it’s crucial to the survival of small businesses. Keeping a close eye on liquidity allows business owners to make smart decisions about their finances and a healthy ratio helps creditors determine your creditworthiness to secure your business the credit it might need. SMEs need to track the financial health of their businesses and measuring liquidity helps to strike the right balance. 

You can look to financing companies to secure additional funding when the chips are down. This can afford you the flexibility to get through unprecedented cash flow crunches and buy you time to improve or rebuild your usual ebb and flow. 


Funds on tap allow businesses to respond quickly to growth opportunities

A new, recovering or growing business needs money to fund expansion strategies. When a business begins to grow, new locations, products, equipment, more marketing or employees might be required. Consider businesses in the construction industry for instance, where upfront investment may be required to fund projects. These activities add to the existing costs and may need additional funding. At this point profits may be slim and whatever the stage your business is in, outside financing might be an important driver of success to reach those new levels of growth and business development.

 

Related: 4 Ways to improve your business’s cashflow

 

Unforeseen costs

There’s no telling when an accident might jeopardise your hard earned work. From fires to floods, natural disasters and as recently experienced in South Africa, destructive protests and looting, or even staff injuries. You have to stay prepared. While insurance might cover most events, premiums still need to be paid and money for salaries still needs to be available during repairs. Even for less disastrous accidents such as malfunctioning machinery or outdated machinery, equipment breaking, just needing to be upgraded or systems being hacked, funding can come in really handy.

Funding allows businesses to plan ahead. In today’s rapidly evolving financial services industry, it’s good to know the options you can rely on. Importantly, it’s good to build good credit and relationships with alternative lenders like Lulalend that can offer you the flexibility you need to access funding easily and efficiently. 

 

The SME Guide to Conducting a Business Review

Reading Time: 3 minutes

 

The latest guide in our Business High Five series, The SME Guide to Conducting a Business Review, takes an in-depth look at how you can assess & improve the operation of your business at any given time.

Download our complete guide to Conducting a Business Review 

In this guide, your SME will be able to make use of insights on:

  • The Importance of conducting a business review
  • How to conduct a basic business review 
  • Practical learnings to expect 
  • Key aspects to avoid when conducting a business review
  • Recommendations on steps to follow when conducting a business review

 

 

The Importance of Conducting a Business Review 

Once your business is set up and has started to run well, most SME owners are inclined to let the day-to-day order of things run as they are. 

It’s at this point, however, time to rethink your strategy. Following the critical early stages, you should evaluate your progress on a frequent basis, develop ways to maximise the market position you’ve established, and decide where to take your company next. Your business strategy will need to be revisited and updated.

 

How to conduct a basic business review

According to Lulalend’s CEO & Founder, Trevor Gosling, it’s very important to step out of the day-to-day and review your company’s performance. “Some areas should be reviewed more regularly than others, most notably financial performance, to ensure you are tracking your business goals.”

Many small businesses operate in a reactive, short-term manner. This gives you more freedom, but it can also cost you time and money as you transition from the beginning stages of your organisation to growing and improving it.

 

Related: The Basics of Reviewing your Business Model

 

Practical learnings to expect 

While the main aim of conducting a business review is to figure out how you can redefine your business goals to further your success, there are other key learnings you can gain from this. 

“The biggest thing about reviews is that they help shape the future of your business by giving clear indications of areas that need the most attention. Without this understanding, you can be focussing your energy in areas that won’t necessarily make a difference in the way you perform,” says Gosling.

 

Key aspects to avoid when conducting a business review

It’s easy to get caught up in the execution of a business review but one should also be wary of the common mistakes business owners tend to overlook in doing so. 

“Just like spending too much time on day-to-day operations is not healthy for your business, spending too much time on a business review can also be harmful,” advises Trevor Gosling. “Keep a healthy balance, don’t get lost in the details and when things are not completely clear, don’t be afraid to go with your gut!”

 

Related: How to write the perfect business plan

 

Recommendations on steps to follow when conducting a business review

Gosling stresses that you should “always have a plan or goals that you can track your business against. That’s the crucial starting point and without it you’re operating in the dark. When you track your performance against your goals, it very quickly highlights where things are going well and where you are missing the mark. But goals are never static and need to be developed/refined, particularly as your understanding of the market improves, to ensure you are setting targets that make sense and are achievable.”

 

Download the full SME Guide here.

 

What can 60 days of cost-free* funding do for your business? 

To help SMEs get the funding they need to grow their business sooner, rather than later, we offer a 60 day delayed repayment option to all first-time customers. So if you apply for funding today, you won’t have to start repaying for 2 months.  If prompted enter promo code LULA when applying.

 

The Basics of Reviewing your Business Model

The Basics of Reviewing your Business Model

Reading Time: 3 minutes

Your business model is your business’s plan to make a profit. It’s an outline of how your business plans to make money which allows you to identify your target market and their needs, the expenses you should anticipate as well as the products and services your business plans to sell. Business plans are important for both new and established organisations, as they help businesses attract investment and talent. Importantly, they help assess whether things are working the way you want them to.

To keep ahead of trends and changes, it’s important to review and update your model. Here are 4 ways to consider reviewing your business model. 

1. Customer value proposition
2. Profitability
3. Resources
4. Processes 

 

Customer value proposition


Do you still resonate with your customers and are you taking their feedback into consideration? Reviewing your value proposition is a great way to establish your relevance in meeting your customers’ current problems, or how you can make adjustments to your product to keep improving their situation. Doing customer research to establish what your customers need can help you in this process. It can give you quantified feedback on the specific benefits of your products. You can find some useful tips for this on our blog post How to Drive Sales Through Customer Retention. It could also spark ideas that you may have overlooked initially. Remember to solve real and important problems for your customers, maintain your differentiation from competitors, and remind your customers why they should trust your brand.  

Profitability

It’s imperative to understand your profitability for the success of your business. The profit your business makes should be used to help secure growth opportunities. Analyse how your business brings in money and opportunities for growth. Start with a profit and loss statement. If you don’t already have one in place, you can start by individually listing how your business generates income and spends money. Also, consider doing a pricing review to understand if you’re making enough margin to be profitable. Once you’ve consolidated the audit, you can try to eliminate work that costs you money and focus on opportunities that generate income. To get a good idea of how to approach this, have a look at Freshbook’s step-by-step outline on how to check if your business is profitable. 

 

Related: How to Drive Sales Through Customer Retention 

 

Resources

Take some time to consider if the resources currently available to you are appropriate for your business model and how it’s evolving. Do you have access to the right people, and are you meeting your financial goals? Whether the answer is yes or no, it’s always a good idea to review this aspect of your business. Consider your capacity and demand management, your resource utilization as well as your progress and time tracking. It’s important to establish your actual resource availability and to get a realistic view of your demands and capacity to deliver. Understand what roles and skillsets you need and streamline communication between your employees and the business, as well as with your stakeholders. If you’d like some ideas on how to get started, Planview – a portfolio and work management solutions organisation – has great advice on resource management best practices. 

Processes

To run a business, processes are used every day. In the quest for efficiency, it’s important to review them and keep the ones that make sense, and improve the ones that don’t. With rapid changes in technology and the evolving demands of your target market, dysfunctional processes can lead to breakdowns in communication, increased costs, or unhappy customers to name a few challenges. Make this an important step to review to help streamline your tasks and business activities. To get started on this consider these steps recommended and outlined on Mindtools:


Step 1: Map the process
Step 2: Analyse the process
Step 3: Redesign the process
Step 4: Acquire resources
Step 5: Implement and communicate change
Step 6: Review the process     

 

Related: How to Write the Perfect Business Plan 

 

Running a business is hard work, but regularly reviewing your Business Model can make planning for the future easier. Make it a priority to keep up with the ever-evolving needs of your clients, talent, and expectations of any investors so you can stay relevant. Try not to overlook the components that make you successful and how you can upgrade them. Remember, if any of your adjustments need financing that you might not have at the time you can always get in touch with one of our Funding Specialists at Lulalend to find out how we can help you meet your business objectives.

 

How to increase your business resilience

How to increase your business resilience

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There’s a very good chance that you’ve been talking about resilience in and around your business and there is a good reason why. In a 2016 survey, Control Risks explained business resilience as “an organization being able to identify, analyze, and implement planning to be better able to recover or ‘bounce back’ from disruptive events”.

Many business and managerial practices have proven that a focus on resilience is increasingly important to ‘bounce back from disruptive events’, such as a global pandemic. In this article we share insight on the following:

  • What is resilience?
  • How do you manage and measure it?
  • How do you build a more resilient business?

 

Request a callback from our Funding Specialists

 

Related: Increasing Your Business’s Resilience to Come Back Stronger

 

What is resilience?

Business resilience can be defined as an organization’s ability to predict, plan, react, and adjust to changes and disruptions in the business environment. If a company can effectively develop its resilience, it can eventually secure its ability to accomplish its goals and objectives, regardless of the unpredictable events and changes taking place.

 

How do you manage and measure resilience?

Traditional management methods have some significant drawbacks that make it difficult to assess and achieve resilience:

  • Many conventional companies have been designed to increase shareholder value from dividends and share value. Very few organizations really aim to calculate resilience beyond particular material threats.
  • Companies and shareholders also concentrate on optimizing their short-term returns. However, resilience requires a multi-time perspective: to forgo a certain amount of productivity or success now for the sake of more sustained performance in the future.
  • Businesses have focused primarily on designing and implementing stable strategies that perform well when the causal relationship is simple, predictable, and unchanging. Resilience deals with what is uncertain, changeable, unpredictable – which although can have serious implications.

Managing resilience requires more than just coming up with new ideas or resources to apply to today’s approaches. It needs a different business model – one that embraces complexity, uncertainty, interdependence, systems thinking, and a multi-time scale perspective.

 

Related: How to write the perfect business plan

 

How do you build a more resilient business?

There are 3 major areas through which resilience can be enhanced:

Leadership and strategy – Building a resilience vision starts with the identification and awareness of vulnerabilities and an overview of the possible effects of these vulnerabilities on the business.

Operations – Operational resilience can be improved by recognizing possible crises that might affect the business and rating these threats against the effect they will have and then implementing a risk reduction and management plan.

People – Employees and their expertise are essential to the organization’s resilience. Investing in the workforce is the only path forward. Ability levels, turnover of workers, work satisfaction, training, and learning opportunities should be closely controlled. Ensuring that people are involved in the change program, and keeping them motivated, will yield rewards for every business.

 

Let’s not forget, many businesses already take on some form of risk management but mostly to understand the effects of specific, known risks. Your business’s resilience should also be to deal with unknown risks, be able to adapt and change any external stress, and possibly turn it into an opportunity to succeed.

7 Ways to manage your cashflow in your construction business

7 Ways to manage your cashflow in your construction business

Reading Time: 2 minutes

Having an effective cash flow system is the heartbeat of any successful business. This is especially true in a construction business where managing cash flow between different projects can mean the difference between success and failure of your business.

We’ve put together a few tips and tricks that can help you manage your cash flow to ensure your construction business remains profitable across all projects.

Understand your customer

As a business owner, it is always ideal to work with contractors and customers who know how to process your paperwork, provide approval on work completed, and pay for services soon after completion. Knowing your customer’s creditworthiness by reviewing their financial statements or annual fiscal reports can help you understand how they have worked in the past and guide you on how to manage your relationship with them. It is important to know that they will be able to pay for the work you complete for them, even before you begin.

Do a Cash Flow Forecast

Create a reasonable cash flow forecast for each of your projects. Depending on the length of the project, plan out how much work will be completed each week or month and how much you can invoice for. Remember to consider how much you are set to pay vendors so you have an estimated idea of how much cash you will have at every stage during your project. At the end of each project, compare your forecast against your receipts so you can improve future forecasts and in turn better manage your cash flow.

 

The Best Bridging Finance for SMEs

 

Be realistic about your profitable estimate

You should never consider taking on a construction project that will not be profitable for your business. Managing your cash flow on profitable projects is difficult enough. You always have to avoid moving funds from one project to pay for another just to keep an unprofitable project going.

Negotiate contract terms in your favour

It is important to ensure that the payment terms you agree on are in your company’s best interest. The invoicing schedule you should prefer is one that reflects upfront costs that set the project in motion, such as being paid for materials when they are delivered rather than when they have been installed. Come up with a schedule that works for you and your vendors so both parties have an understanding and you can avoid having disputes about money and payment terms throughout the project.

Always check Change Orders

Change orders can have a big impact on your cash flow so it’s important to know what you can and can’t charge for. Change orders should be clearly established in the contract. Keeping on top of and documenting the extra work completed is essential.

Be strict about collecting payments

It is always good to have your accounts receivable down to 40 days or less, however, this may not always be the case. When invoicing customers, ensure you have all the correct and necessary documentation and that you are submitting to the relevant people so you can avoid delayed payments. Do not be shy when requesting payment against an agreed contract.

 

3 Ways Bridging Finance Instantly Improves Cash Flow for Your Business

 

Close the Project

Closing a project and collecting payment can be tricky at times. Effectively managing the final punch list can improve the timeliness of the final payment. With the help of Lulapay, you can collect payments upfront and we can offer your debtors payment terms with us. Read more about how this works here.