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Bad financial habits kill SMMEs: expert

These lead to small business not being able to be funded

Tebogo Mokwena by Tebogo Mokwena
Aug 19, 2021
in Home Page, Small Business
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Bad financial habits kill SMMEs: expert
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Often a lack of access to financing kills small businesses, but one expert says SMMEs can overcome this through different solutions. Wits University senior lecturer Yudhvir Seetharam told Vutivi News many SMME owners had bad spending habits that stained their balance sheets.

Also, small business entrepreneurs struggled to access financing because they did not know their target market, lacked financial knowledge, did not have a history of regular spending, or combination of these. Seetharam said it was difficult for SMMEs to access money because of their financial history, or lack thereof.

“It’s normally a requirement that you either have a financial history if you are a small or medium company, or, for those who are trading in a personal capacity, to have a good credit record,” he said. The lecturer said that the appetite for lending was determined by financial records. So, for businesses starting out, it was difficult for them to access start-up finance because financial institutions required a history of records.

“So it’s a Catch-22 where you need this type of financing to grow your business, but you also need to survive over a short time period in order to have history to provide to your financial service providers,” he said.

“The second big problem is getting the basics right. (This includes whether) you know your target market, (if you have) done research on competitors in the industry on your own business, (and if there is) a way you can increase revenue and decrease costs.” He said many people liked to start businesses, but they did not have the best product or training to be successful.

Seetharam also said that financial institutions’ decision to provide finance hinged on the lender’s chances of paying it back. “The risk for a financial institution (to give SMMEs corporate finance) speaks about default. How likely it is that the person they lent money to will be able to make regular payments… and that’s where having more data allows financial institutions to make more informed decisions,” he said.

Seetharam said it was crucial that SMME owners kept their spending in check.

If you don’t know that you’re spending too much money on a cellphone contract or wasting money on something not efficient, then getting extra money won’t help. You’re still going to do bad things with the extra money,” he explained. “You need to be comfortable in running a business without extra financing and be comfortable with growing your business with extra financing.”

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Tags: Financial historySMMEs and finances
Tebogo Mokwena

Tebogo Mokwena

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