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Small and medium sized business (SME) owners wear many hats on any given day, often having to take the lead on everything from operational processes and cash flow management, to sales, marketing and human resources.

The high-stress nature of starting – and running – a small business means day-to-day administrative and financial tasks can sometimes take a back seat. This results in increased pressure when approaching tax season, but can also lead to serious financial trouble which is hard for a small organisation to recover from.

This is according to Gary Epstein, managing director at EasyBiz QuickBooks, who said SME owners face many challenges in the current market, with between 70 per cent and 80 per cent of these businesses not surviving their first year and only nine per cent of them then making it to the 10-year mark.

“One of the reasons thought to be behind this high failure rate is a lack of funding. However, for those who have been able to secure or raise the necessary funds, it is crucial to prioritise the management of the company’s finances moving forward. Financial security needs to be a key objective for all SMEs so that they can beat the odds, stay ahead of the competition and grow their operations, profits and workforce,” Epstein said.

Here are Epstein’s top five financial tips for SMEs when it comes to achieving financial security.

Be 100 per cent certain that you are financially ready to set up shop

With the success rate statistics in mind, starting a small business is a risk, and no matter how great your business plan is, there will be unexpected challenges and expenses to address within the first few months. For this reason, it is essential that the entrepreneur behind the SME overestimates how much startup capital they need.

“A certain amount of credit may be necessary, but you do not want to start off with a massive amount of debt and then go further into the red so that you can keep a roof over your head and food on the table,” Epstein said.

“As a minimum, it is advisable to have at least three months’ living expenses saved in addition to the amount needed to cover business expenses for the first three months of operation.”

Spend sensibly and save wherever possible

Once you are set up and ready for business, Epstein suggests continuing with a frugal mindset.

“Where you can, cut back on spending. While it does take money to make money, you don’t want to be caught up in heaps of debt. Focus rather on spending on necessities such as supplies and key skills and save on signage, business cards and rent until your budget allows for it. Also, don’t be too proud to negotiate for discounts when approaching suppliers,” he said.

“In the spirit of Savings Month, it needs to be said that SMEs should continuously be putting money aside for emergency situations. Saving now will give you more flexibility in the future.”

Keep an eye on day-to-day cash flow

“I can’t emphasise enough how important it is to stay on top of your finances – no matter how big or small your business is. You need to be aware of the big picture, but your business’ financial health starts with day-to-day cash flow. Ultimately, if you let the daily spending slip under the radar, it can add up quickly and you’ll be in trouble before you know it,” said Epstein.

If, as the entrepreneur behind the business, you are struggling with cash flow management, he suggests either approaching a good accountant or investing in online tools that simplify keeping track of your income and expenses.

Take advantage of technology

Epstein said SMEs need to consider the digital technology at their fingertips.

“We live in the digital age with everything from banking and shopping, to connecting with old friends taking place with just the click of a button. Business processes are no exception, technology gives companies the competitive edge and if your organisation isn’t adopting the innovation available, you are likely to fall behind your competitors,” he said.

“For SMEs, digitising tasks such as accounting offers greater convenience, accuracy and efficiency.”

Plan ahead for tax and regulatory requirements

“It’s that time of year again. The 2018 tax season has small business owners feeling the pressure to get their financial affairs organised. The best approach to this situation is to have your books in order all the time. Procrastinating on this is the biggest financial mistake SMEs can make,” said Epstein.

He said the preceding two tips all feed into this major financial priority.

“Not only do you want to be in a position that enables you to move through tax season with ease, but by properly managing your day-to-day financial tasks you have a clear understanding of whether your business is on the right track, whether your budget is realistic, and which part of the business could be performing better. It’s a matter of optimising your data,” he said.

“It’s never too late to take control of your finances and when it comes to SMEs, the sooner the better. With the potential to generate approximately 90 per cent of jobs by 2030, according to the National Development Plan, the entire country stands to benefit from the success of our small businesses.”

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