[Column] Anton van Heerden: Small & Medium Businesses should be saving Money for a Bad Day – Here’s how
Every Small & Medium Business should be aiming to have some savings in the bank as a buffer for difficult months when sales are slow or debtors miss payments. If your business has some cash in reserve, you’ll be able to fund your growth in the future, avoid taking loans at punitive interest rates and meet your creditors’ payment deadlines.
Yesterday was World Savings Day, an event created to increase the public's awareness of the importance of savings for modern economies.
Here are a few ideas about how you can shave down some costs to create savings that you can bank for that rainy day:
Too much cash is just as bad as too little
As an entrepreneur you’ll hear a number of opinions about how much cash you should have on hand — for example, many people will advise you to have enough to cover six months of operating expenses. But this will vary between businesses, according to their cash flow, maturity, burn rate and other factors. If you are not a financial person, ask an accountant for advice.
Bear in mind that in an ideal world you want to strike a balance between the risk of running out of cash and the danger of having too much dormant cash in your bank account. With today’s relatively low interest rates, it might be better to invest excessive money in productive capacity for your business or to pay it out to shareholders and owners than to leave it lying in your bank account unless of course, you have a financial advisor that handles the business’s money. Having excess money and no plan for it can lead to unnecessary spending which can be dangerous especially if your business has just started out and the future of the business is still uncertain.
Use free and affordable cloud applications
Rather than spending your cash on servers and expensive software licences, rather sign up for online software subscriptions. Companies such as Microsoft and Google offer affordable, cloud-based email and productivity software, allowing you to pay a modest subscription rather than paying upfront. In some cases, you might want to make do with free options such as Dropbox or Google Drive until you have enough savings to invest in long term software.
Embrace the gig economy
One of the biggest costs and risks for small businesses is absorbing too many employees too early. Today, you can source reliable freelancers for many of the tasks you need to do in your business - saving you money because you can tap the skills you need on demand. Why not hire freelance marketing consultants, graphic designers, digital marketers or writers when you need them rather than a full-time marketing manager?
Ask your friends to help if they have the skills — they might be more willing to do barter deals or agree to flexible payment terms compared to strangers. For example, if you run a restaurant, you could host your lawyer friend’s year-end partner in exchange for some informal legal advice. Another way to ensure your business stays afloat without hiring someone is to outsource your daily tasks such as HR and payroll – this will allow for the smooth running of your business while getting the daily admin done with ease.
Ditch the plush offices
If you’re running a smaller business and have only one or two employees, have a good look at your office costs. Is it really worth having an expensive base in the CBD if you and your team spend most of your time at client sites or if you do most of your work on a computer? Today’s technology makes it easy to work wherever you are, including a home office.
The future is mobile and even for us, we believe in giving business owners the power to control businesses from the palm of your hand allowing for easy access and mobile working. There are many co-location and virtual office spaces that you can use for a modest fee for the times you want the buzz of an office or need to host a meeting. The savings can amount to a hefty amount each month.
One good way to save on your salary bills is to make tactical use of interns who are fresh from school and university. They are eager to learn and to strengthen their CVs, so hiring them can be a win-win. You’re helping them earn valuable experience while reducing your business costs. Don’t expect them to work for free – pay them at least enough to cover living and working costs such as transport and accommodation.
You will need to give them plenty of support and choose carefully what you delegate to them. An intern programme can be a great way of identifying potential future hires for your business. Also, keep an eye on the Employment Tax Incentive (ETI), currently scheduled to end on 31 December 2016. If government chooses to renew it, you might benefit from tax breaks for hiring young people.
In the current state of the country, it is imperative that Small & Medium Business owners gear up for the tough times ahead. Matters affecting the nation such as an electricity crises and water restrictions will take massive strain on businesses. Be prepared with small tasks such as keeping your data backed up, installing the latest software and investing in generators can save time and money during power outages when they happen.
Water restrictions have now become the norm and we, as a country need to accept this as a way of life. To ease the frustration and still be comfortable, some of the things that businesses can do to save water are installing water efficient fittings, detecting and fixing leaks as and when you see them. A more affordable option to saving water is installing a greywater system to water gardens. Some of the options out there are more costly but will be worth the investment of saving over time.