A penny saved is a penny earned, so the old adage goes. For many business owners and founders, running a venture as long as it takes is often the key goal. While the immediate focus is always on developing new products and growing a strong consumer base, that will guarantee profits for shareholders, saving part of the earnings and exploring various investment options are usually a consideration, especially during times of boom. This is not unique to large companies but also to small and medium enterprises operating in Africa.
Exploring savings options is critical for business in any stage of development, be it in the early stage or mature stage. As a business, building a savings plan does not only guarantee the survival of the business during hard times but also provides enough buffer for any short-term and long-term shocks. This also applies when a business is considering other investment options to widen its income streams.
To begin with, as a small and medium enterprise operating in Africa, you must ensure you can monitor what your business brings in and what you spend to keep the business running over a given period of time. Keeping track of your income enables you to budget and plan for the business in the long run. When you are aware of how much your business brings in, you can plan better and prioritize your expenditures.
It allows you as a business owner to stick to your budget or make necessary cost-cutting measures that will ensure you cut unwanted spending.
As a business owner, you should also ensure your business is running on smart solutions. This will ensure you are able to deploy cost-cutting measures without necessarily expanding your overhead costs, such as additional wages for extra employees. These could be automated solutions, such as software that will ensure you cut on manual labour and enhance efficiency.
For instance, if you invest in automated payment solutions, your employees are less likely to handle cash that would be siphoned from the country or lost in the process, leading to you reporting unwanted losses. Investment in smart technological solutions also means you are able to track the financial health of your business effectively and keep records just in case you need them when the need arises.
During a period when the business is enjoying a good run of profitability, it is also prudent to ensure you set aside some funds for a rainy day. When you set aside a separate fund where retained profits are directed, you can build a cash reserve that will act as a buffer and sustain your cash flow during hard times. Money from this special fund can be used to invest in other investment classes, such as government securities or pension funds, where the money earns interest for your company. Saving for your business also means avoiding unnecessary debt that could lead your company into financial strain.
Before taking up any debt, ensure you analyse the pros and cons of the credit you are taking. Ensure you understand the terms and that your company’s balance sheet is able to take the debt. Most small and medium enterprises, in a bid to expand their business, take on additional debt without proper consultations with financial experts. Getting professional advice could save you and your business if you are able to negotiate better terms such as interest and repayment period. Companies such as Business Partners International provide affordable finance at longer repayment terms and should be explored first when seeking business finance.
As a business owner, you should also consider diversifying your investment. This ensures you have a wider income stream when your business is affected by internal and external economic shocks. For instance, if you are running a hotel, you could diversify into a tour guide or safari business to supplement your income.
Additionally, running a business that is not insured could be very costly if disaster strikes. Buying a policy is necessary not only for your business but also for your employees. This comes in handy when trouble strikes because you never know. If you buy an insurance policy for things like fire, election violence, floods, or theft, then it means that when such events occur, your expenses will be covered by the insurance company.
This also applies when one of your employees is sick or injured at the workplace. When such events occur, instead of using the company’s finances to cover the expenses, which can be costly, insurance does it for you.
In a nutshell, embracing the power of financial planning will help you save for your business and build sufficient capital buffers during difficult times, while effective financial management will mean you run a healthy business that can expand beyond the horizon.