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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.
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.
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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
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.
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27 March 2021 marked one year since the introduction of the five-tiered Alert Level system and South Africa’s move to Alert Level 5. Like many people, we’re reflecting on the year that’s been.
One year later and many businesses are still feeling the effects of having to adapt and survive during a global pandemic. We’ve seen many businesses close their doors, some shift their focus and new businesses arise. All of this indicates that South African entrepreneurs are committed to strengthening the economy with the help of government subsidies and other alternative business funding resources.
In more recent months we have seen an undeniable surge in business activity due to the easing of lockdown restrictions. There has also been overwhelming support shown between businesses as well. “There is a rich abundance of knowledge, skills, and expertise in our SME sector – all of which has played an essential role in SMEs survival and ability to adapt during the pandemic. Part of this is that we have had to move away from a ‘business as usual’ approach and realise the need to learn from the lessons that the past year has taught us in order to plan and prepare for the future,” says Trevor Gosling, CEO, and co-founder of Lulalend.
Download our eCommerce Guide for more information on how to take your business online.
Related: 5 Digital Marketing Strategy Tips: COVID-19 SME Support
The most obvious and widespread impact of the pandemic and resulting lockdown on SMEs was on revenue.
The commencement of Level 5 lockdown impacted SMEs income streams, leading to cost-cutting and even layoffs. Some of the most affected industries include tourism, hospitality, non-essential retail. At the height of lockdown, a large percentage of Lulalend’s customer base told us that they only had 1 month of cash runway to make it through.
Source: McKinsey & Co “How SA SMEs can survive COVID-19” July 2020.
In an effort to adapt and diversify, many businesses turned their heads towards a more digital approach during the early days of lockdown. This encouraged online sales and boosted vulnerable retail sectors that would ordinarily function on a bricks-and-mortar basis. And here we saw the rise in new – and quirky – new business too. The rise of eCommerce brought about a new digital age like never before. “People have now gotten used to living in a digital world,” says Gosling.
Businesses that were able to take advantage of digital optimisation are those that had access to a line of credit in a time of need. Positive cash flow is essential for the survival of your business – especially during uncertain times. When you run into cash flow challenges, you are not able to pay your bills on time risking a decrease in its credit line or higher interest rates. That’s why having access to fast and efficient business funding or a revolving line of credit is essential for all small businesses.
Related: What Challenges Do Female SMEs Face in South Africa?
While the economic recovery from Covid-19 is well on its way, we have to understand that it’s far from over. Business owners need to take the necessary steps to plan and develop long-term strategies to survive and thrive in the ever-changing global economy. Taking the time optimise business operations will go a long way in determining the success of the organization in the long run.
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South African small and medium-sized enterprises (SMEs) are the engine-room of our economy and the country cannot afford for this to collapse because millions of livelihoods depend on them. For many small business owners, medium- and long-term planning is not a part of their business strategy, but it is time to realise that the steps taken today will determine whether their survival into 2022 or not.
“There is a rich abundance of knowledge, skills, and expertise in our SME sector – all of which has played an essential role in SMEs survival and ability to adapt during the pandemic. Part of this is that we have had to move away from a ‘business as usual’ approach and realise the need to learn from the lessons that the past year has taught us in order to plan and prepare for the future,” says Trevor Gosling, CEO of small business service provider Lulalend.
Related: 5 Growth areas for your business in 2021
The government’s financial assistance to the SME sector will need to be supplemented with decisive action taken within the SME landscape, he adds.
“The R1.4bn relief package is not enough to save a sector that contributes an estimated R1.5trillion to the economy. Yes, the financial aid is welcomed but it is crucial that SMEs take action to ensure that they are able to recover from the economic hardship that the last year has dealt them,” says Gosling.
To do this, it will require business owners to critically evaluate what did or did not work over the past 12 months. “While there is a renewed optimism, now that the first vaccines have been administered, it is not the time for SMEs to slow down and wait for recovery,” says Gosling.
“Are there better, cheaper, and more efficient ways of delivering your service, and are there unnecessary overheads that you can cut? These are the things that business owners need to think about when mapping out their plans to survive and grow over the next two years,” he explains.
Related: What Challenges Do Female SMEs Face in South Africa?
Equally so, Gosling says that SMEs need to understand how their customer base and needs have changed, which includes the competition. “These shifts are important to consider, especially if you want your marketing efforts to yield the maximum results. If your customer base or their needs have changed, it is important that SMEs focus on building new relationships to deliver repeat business in the future.”
During the year ahead, time will need to be taken to revisit business plans and develop long-term strategies, to not just survive but to thrive. Many of the actions taken in times of crisis can be beneficial to a business in the long run.
Owners should consider how hastily streamlined processes and drastically slashed overheads can be refined to create a new, efficient, and cost-effective business model that can still deliver the best goods and services to their customers. Combining this with the advantages of applying digital technology can set a business owner on the road to recovery and a thriving future.
While most companies have been moving online over the past few years, the pandemic has shifted this into overdrive. He says that there is no turning back. “People have now gotten used to living in a digital world.”
Related: 5 Digital Marketing Strategy Tips: COVID-19 SME Support
But, going digital does not necessarily mean that developing an e-commerce offering is the only way that this can be done. “Digital technology can help to automate and streamline other aspects of the business, including stock control, financial management, and payment facilities,” he adds.
Lastly, and probably the most important for survival, is for businesses to ensure that they have effectively managed their cash flow. As part of the planning, it is essential that time is taken to analyse what can be done to reduce financial constraints in the year ahead. In addition to this, access to capital to invest in growing or pivoting the business will be crucial.
“It is important that SMEs talk to their credit providers about access to funding, including a revolving credit facility to help manage their cash flow,” explains Gosling.
“Survival is dependent on shifting business strategies and plans, as well as leaning on partnerships with service providers, stakeholders, and customers. The year ahead will be a bumpy one, but with the right support it will be possible to come out the other side in a much stronger position,” says Gosling.
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We all understand that growth is essential for any business. With that said, we also know that growth isn’t easy and many organizations struggle to find growth areas that work for them.
If you’re currently struggling to grow your business or are looking for new strategies, we want to inspire you. Here are our top 5 growth areas for you to incorporate into your 2021 business plan:
- Sales & Marketing Alignment
- Customer Experience
- Digital Transformation
- Data-driven Transformation
1. Sales & Marketing Alignment
If you want to see effective results, your sales and marketing teams should not be working in silos. When you align these two areas, you enable our business to increase conversion rates, generate higher revenue, and retain more customers through streamlined sales and marketing funnel.
A collaborative sales and marketing team will not only convert more leads but also generate higher quality leads too. When a strong sales team informs the marketing team on what a ‘good quality lead’ looks like, they’re far more likely to find them.
2. Customer Experience
You may think you understand your customers but you still have to constantly ask yourself, “How well do I really know my customer?” because, as we know, people are ever-changing.
In order to retain your customers, you have to constantly put them first. You can do this by understanding what it is they enjoy about your brand, and what they don’t. Focusing on creating a memorable and positive customer experience goes beyond just making the sale. Having a follow-up journey and personalized added extras will show your customers that you value their business and will go the extra mile to keep them coming back.
Related: A quick guide to Bridging Finance
3. Digital Transformation
2020 showed us that we live in a time of a full-scale digital revolution. If it’s not online, is it really there?
The power of technology has allowed any type of business to seamlessly fit into our lives. Going digital has also made it easier for businesses to simplify and streamline their internal processes for a more efficient way of working. For example, using online tools to store your data like accounting or human resource documents can free up your time and physical space to do more.
4. Data-driven Transformation
The great thing about the digital age is that most of the data you need is readily available at your fingertips. However, the biggest factor that should inform any decisions you make within your business should be based on customer feedback.
Using data from sources such as your cancellation feedback, customer reviews, and even your customers’ behavioral patterns on your website to inform what changes you need to make to your products and services, will add greater value to the growth of your business than a decision made by one person.
Related: Gear up your business for growth
Ongoing training is essential to the growth of any business and should always be a focus area year after year. Whether it’s technical training for machinery, customer service, or sales training, any form of educational improvement will spark new life into the quality of work your team pushes out. And it will show in your profits too.
By investing in your people, you’re directly investing in your business as well.
As we go into the new year, it’s important to stay one step ahead of the game and plan for success as far as possible. Use our 5 growth areas to kickstart your 2021 business projects with a bang.
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With the move to Alert Level 2 we should see an increase in economic activity, and for many SMEs this is a great opportunity to try get back on track. The Delta variant means the rules for Alert Level 2 have been strengthened from last time, but it’s still a positive move for businesses. While we are still practicing social distancing, there’s no better time to show our support for local businesses than now.
We’ve unpacked 5 ways we can all support each other as South African business owners and customers.
Find a local supplier
While we all love the convenience of being able to shop online and secure our purchases with the click of a button, in many instances, there are local businesses that have exactly what you’re looking for. Spend a little bit of time finding a supplier or store near you that stocks what you are interested in.
Many small businesses are happy to order from a supplier (if they are out of stock) and have goods delivered to you.
Chief operations officer of Rising Tide Capital, Jay Savulich, says “The most important thing to remember if you want to help small businesses in your community is that you are an investor in these businesses. Try to be as thoughtful as possible with where you as a consumer invest your dollars.”
Reschedule, don’t cancel
If you were set to attend an event, or you’ve booked a service but something’s come up (we all know, life happens), rather ask to reschedule your appointment.
Many small businesses that host events rely on this income to stay afloat. Rather than asking for a refund, commit to attending the event when a new date has been released or you can donate the funds to the business. The same goes for services if you cannot make it, reschedule ahead of time so the business can give your time slot to another customer.
This way the business is still able to make an income and you still keep your business for a later stage.
Related: 5 Ways Your Small Business Can Prepare For Black Friday
Spread the word
Giving your favourite local business a shout out on social media can go a long way. When you are particularly happy with the service or product from a particular business, follow and mention them on social media.
If they have a review portal, give them a thorough review of your experience with them. You can also go on business review sites like HelloPeter.
When in doubt, buy a voucher
For those businesses that are not yet open, there’s always an option to purchase a voucher as a gift for yourself or a friend. While you may not be able to take advantage of a business’s services or products right now, purchasing a voucher ensures they have made a sale and will welcome your business in the future.
In many cases, when customers buy gift vouchers, this helps keep the cash flow steady and means they are able to pay wages to employees. Doing your part can definitely go a long way.
Related: What is Bridging finance in South Africa?
Donate or volunteer
While we know money may be tight for many during this pandemic, if your income has not been affected, it is imperative to continue your support for local businesses in any way possible. If you are able to donate funds to a local business in your community, you could be saving someone’s job and livelihood to provide for their family. If you are cash strapped, give the gift of time by volunteering to help out in the business whether it be by cleaning, packing, or even delivering their products to customers. There is always a way to help.