South Africa is a land teeming with hustling entrepreneurs, and SMEs effectively do the heavy lifting in the economy. Many have bootstrapped their businesses by hand, learning the ins and outs of business through practical experience.
Most local entrepreneurs don’t have the luxury of a degree in finance. “As we find ourselves in the middle of Savings Month, it is an opportune time to take a closer look at the complex business savings landscape and how it can benefit small businesses,” says David Clarke, finance manager at Lula.
It’s no secret that our economic climate is rough, and that South Africans struggle with saving. Less than 10% of individuals save enough for retirement. This savings drought extends to the bustling SME sector – the lifeblood of our economy – with potentially far-reaching implications. In a period of economic crunch, financial discipline is becoming more crucial by the day.
“Financial education is key. Understanding saving versus spending, the impact of different forms of credit and debt, and managing cash flow efficiently, can make or break a business,” says Clarke.
He explains how savings and business credit work in concert for SMEs. “There’s a time and place for both. Ups and downs are inevitable in business. Just as would be the case for a private person, you as business owner will need to have access to a savings pot to draw from to weather tough times. You also need discipline to avoid complacency, and to top up the savings pot when business is good, and profits are rolling in. It’s about having a buffer for a rainy day!”
“With pandemic memories still fresh, we know all too well why a financial buffer isn’t just a ‘nice-to-have’,” Clarke adds. “A three- to six-month financial cushion covering basics like rent and salaries is essential.”
In the dynamic context of SMEs operating within an increasingly nuanced financial landscape, savings and credit aren’t opposites. They’re two sides of the same strategic cash flow coin.
Ultimately, savings are an investment in your business’s future. They offers an emergency buffer for times of economic hardship and allow entrepreneurs to grow organically. There are times when expansion requires more capital than is in the savings pot or requires immediate access to cash to capitalise on the opportunity. Access to credit exists therefore to bridge the gap between what you can afford to do now with saved reserves, and your desired outcomes.
“There’s a first-mover advantage in many sectors. As we say, ‘the early bird gets the worm.’ Digital-first credit partners like Lula, who offer a same-day turnaround on credit applications, are particularly well suited to closing these financing gaps fast. With far less time taken to approve and get the cash into your account than traditional banks, modern e-lenders allow SMEs to move swiftly, and seize business opportunities as soon as they arise.”
Elaborating on how to determine your investment strategy, Clarke says, “There’s a sliding scale of potential rate of return versus accessibility. For businesses, instant access to savings is sometimes crucial but this generally carries a lower rate of return. However, options with longer timeframes often offer better returns.”
Speaking to a financial adviser is certainly recommended. Clarke is in favour of business owners putting some form of a savings strategy in place and expert advice can show you the way to follow.
“Savings options vary and can be used in concert to form a balanced savings portfolio,” Clarke notes. “Beyond a basic business savings account, consider bonds or investments in stocks or ETFs for longer term savings to earn better returns.”
He advises speaking with a financial adviser before making significant savings decisions. “Each business has unique needs, and the financial landscape is increasingly complex. Guidance from professionals can help you make sound savings choices and ensure that your business’s cash flow needs can reliably be met.”
A robust understanding of financial concepts and systems is increasingly important for business success. This July, Lula encourages SA’s SMEs to be mindful of their financial strategies, money management, cash flow and how saving combined with good credit practices can drive growth.
