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Common Finance Mistakes South African Small Businesses Make
Starting a small business will not be the most accessible path you will ever take in your life; it will be littered with obstacles and barriers which often deter many. As for those who stick it out, essential lessons are learned as well as a certain sense of value and accomplishment you do not get with other endeavours. Being an entrepreneur can be a lonely road, and when you take the path less travelled, any bit of guidance and advice can make all the difference.
During my time as an entrepreneur I've had the pleasure of speaking to a range of local and international business owners, startup founders and freelancers all trying to navigate these waters. One of the topics often discussed is money management and how small businesses treat the income they earn, how they allocate it and how they use it to fund and grow their businesses.
When margins are tight a few thousand Rand here, and there can make all the difference in turning your business into a consistent revenue generator. After speaking to some SME's and independent contractors, I started to see a few common mistakes that I would like to share with all you were aspiring South African go-getters.
If you're starting to make a little money with your side hustle or if you've taken the leap full time, I highly recommend you start practising the following money management principles.
Firstly, I would always recommend that you have savings to hold you over for a few months just to take the pressure of having to earn a large sum of money from the start. This will put unnecessary pressure on you and will encourage you to make decisions based solely on money and not what is best for you and your business. This will only prove to make you miserable and leave your business directionless, and it will begin to show in your output since you're not committed to the tasks with passion and drive. Once you do start to develop a revenue stream I highly recommend you pay yourself first, you are your businesses best and sometimes the only resource and should be rewarded, even if it's with a little stipend to cover your personal expenses, so you do not eat into your savings. Always make sure that you pay yourself when possible.
Pay your business
I know this sounds like a strange concept, but if you intend to grow your business, you will need to start paying it each month. Set up a savings account attached to your business account and try to pay your business a "salary". By putting away money each month, you can raise capital towards things like better equipment, employing a new staff member or marketing. Having a little war chest also gives you the added confidence to take risks when opportunities arise, like paying to attend an exclusive networking event or taking out prospective clients all with the aim of building new business and revenue.
Monitor the flow of money
This one may sound like a no brainer, but you would be surprised at how many small business owners and freelancers pay little to no attention to where the money comes from and where it is going towards. Create a spreadsheet for yourself and add your monthly expenses and various forms of income this will help you see the month by month picture and allow you to effectively pay yourself and pay your business and keep up with any expenses. Once you make it a habit have the big picture you can quickly start to plug leakages before they happen or react to a loss of income without eating into your runway because of a high capital burn rate.
Adapt your practices to your cash flow
Small businesses are either feast or famine and each month can be different from the next, so you need to be prepared to adapt to any situations. As you begin to monitor your money more effective you can start to make more strategic and insightful decisions as your revenue comes in. You can effectively adjust how much you pay yourself, pay your business and cover your expenses, perhaps add to your costs with new purchases or a marketing budget and adapt these to your revenue each month, so you get the best out of the money you earn and spend each month.
Allocate capital to marketing
Now that you've started to put away money each month you need to look at allocating some of the money you earn into marketing, don't try to overextend yourself and pick a paid channel that works for you. This could be hiring a professional or freelancer to do your marketing; it could be to spend money on Facebook or Google ads; it all depends on how much you are willing to pay. Even if you can only put R1000 towards marketing each month if those efforts are done correctly and bring in 2 or 3 new clients, it could very much pay for itself, and so you continue growing your marketing efforts and your business along with it.
Change your relationship with the money you earn
These methods are by no means full proof method for success and will need to be adapted to your income and business needs, but they can help get your head in the right space and how you view your relationship with money. Having a healthy relationship with money where it doesn't rule you, and you can make it start to make it work for you.
You will have to get the wheels going yourself in the beginning, but as you generate regular cash flow, you should look at ways to lighten your load and use the money you earn to grow your business effectively. As they say, you need to spend money to make money!
Strapped for cash?
If you're still strapped for money and would still like to make positive strides in your business, then I recommend you check out the following articles
- How To Take Advantage of Digital Marketing For Free
- Free Digital Tools For Small Businesses and Startups
- 8 Free Marketing Automation Tools For Small Businesses
- Free Project Management Tools For Small Businesses
- 5 Free Email Suite Options
- Free Tools To Analyse your Competitors Sites
Tell us your startup story
Have you started a small business recently? How is it going? Do you have any tips you feel should be added to the list? Share it with us in the comments and let's help South African businesses grow even more.
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If you are a South African small business and would like more leads then why not list your business with nichemarket. Registering with nichemarket is easy; all you will need to do is head over to our sign up form and follow the instructions. If you require a more detailed guide on how to create your profile or your listing, then we highly recommend you check out the following articles.
If you enjoyed this post and have the time to spend diving deeper down the rabbit hole, then we suggest you check out the following posts about saving or making money in South Africa.
- How To Find Local Freelance Work In South Africa
- Over 40 South African Tech Business Ideas That Require Little To No Capital