According to Ravi Govender, head of small enterprises at Standard Bank, on average, about 50% of all startup businesses in South Africa fail within 24 months due to the inexperience of their owners.
“Possibly the most critical business acumen you should acquire and keep working on is financial literacy,” notes Andrew Maren, founder and CEO of Fintech company ProfitShare Partners.
Briefly, financial literacy refers to the understanding and knowledge of financial concepts, tools and practices necessary to make informed and effective financial business decisions. It’s what can turn “just getting by” into “super-successful”, and here are some tips on being the latter:
- Educate yourself every chance you get: Learn about financial concepts and principles by reading books and articles; attending workshops; taking online courses; and participating in conferences on financial management, accounting and budgeting.
- Make friends with financial statements: Grow your understanding of financial statements, including balance sheets and income/cash flow statements. Learn how to analyse them to keep your finger on the pulse of your business’s financial health to ensure you make informed decisions.
- Create a budget: An effective and comprehensive budget helps you to understand income sources, fixed and variable expenses, and cash flow trends. Make time to review and compare your actual performance against the budget regularly to identify areas for improvement.
- Review your financial resources: Track and monitor your business finances effectively by using accounting software and hiring a professional bookkeeper to maintain accurate records of your income, expenses and financial transactions. A good bookkeeper will also ensure your SME is compliant with all updated South African Revenue Service (SARS) requirements – and this is vital.
- Manage that cash flow: Cash flow management is crucial for SMEs to understand the timing of cash inflows and outflows, maintain a cash reserve for emergencies, and set policies to ensure the collection of payments from customers and paying suppliers.
- Keep learning: Expand your financial literacy to include investment strategies, risk management, tax planning, and funding options to expand your business or optimise your financial resources.
By engaging with other SME owners, experts in your industry and financial professionals, attend networking events and join industry associations or online communities. Sharing experiences and insights can help you gain valuable knowledge and perspectives.
Consulting with financial experts, accountants or business advisors who can provide insights into your specific business needs can ensure you understand complex financial matters, tax obligations, and financial planning strategies.
“Remember,” says Maren, “improving your financial literacy is an ongoing process, especially as the world deals with Polycrisis, where inflation, the cost of living, supply chain and other issues all meet to make doing business difficult. This is where knowledge wins – and those who have the right moves can indeed super-succeed.”