Simple budgeting is better for a tough trading environment
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| Kobus Engelbrecht |
This is according to Kobus Engelbrecht, spokesperson for the 2016 Entrepreneur of the Year® competition sponsored by Sanlam and Business Partners Limited, who says that good budgeting sense and awareness will play a pivotal role in leading a business through tough economic and trading conditions.
The recently released Global Entrepreneurship Monitor (GEM) 2015 / 2016 Global Report states that a lack of profits or finance accounts for more than half of business discontinuances. In South Africa, over one in four business exits are due to financial difficulties. “In the current marketplace South African entrepreneurs find themselves operating in, money is tighter than usual. Apart from consumers feeling the pinch and cutting back on their spending, financial institutions are also tightening their lending criteria, making it increasingly difficult for entrepreneurs to access additional funding if it is needed.”
Engelbrecht says that during challenging trading conditions, greater attention should be given to budget allocation. “Although forecasting and developing a budget in a challenging economic climate can be difficult, it is necessary for the survival of a business.
“Extra time should be spent on reviewing and narrowing budgets, as without a well-managed budget, a business can easily find itself in trouble. Not only will a clear budget and targets offer direction at management level, but it will also assist staff at an operational level.”
Engelbrecht offers entrepreneurs the following advice on how to stay on top of their finances in 2016:
Stay in touch: Market information and research are key ingredients to maximise opportunities and minimise losses. Interact regularly with your clients, employees and suppliers and make a concerted effort to stay up to date with new developments that may benefit, or hinder, your business. If you are aware of what your market requirements are ahead of time, you can minimise incidents of loss.
Buckle up: By doing a quick inventory check, a business owner can quickly refine excessive costs. These costs may include small items, such as coffee or office printing, or something much larger, such as a work process that could perhaps be conducted in a more efficient method. Entrepreneurs should be encouraged to communicate these cost cutting initiatives to their staff and encourage employees to get involved. Often you find that a business’ employees may not be fully aware what the minor daily expenses at the office can quickly add up after a year, or even in a month, in real terms on the business’ turnover.
Be Realistic: Cash-flow needs to be closely managed and should not be rigid in theory to make the entrepreneur feel more positive about the financial future of the business. Businesses need to continue to spend money during this downturn to continue operations, but just at a more sensible rate. Provisions however should be made in the cash-flow to account for economic downturns and how the business will prepare for prolonged periods of a downturn while it waits for the next positive business cycle.
Back to basics: One of the many reasons it is difficult to keep track of money spent is due to the cashless society that businesses operate in. While a good way to avoid unnecessary and overspending is to make use of cash payments, this isn’t always realistic. Instead, entrepreneurs could treat their budget books as cash payments and log all transactions as and when they take place. It may seem like a tedious activity, but it doesn’t need to be a complicated system – a simple excel sheet could work. Not only does this help to closely watch budgets, but an entrepreneur can also be updated with his business’ transactions daily.
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