6 Simple steps you must take to attract funding as an SME in 2022: Around half of all small and medium-sized firms (SMEs) worldwide fail within the first five years of their existence. This percentage is even greater in Nigeria as a result of several reasons unique to our working environment, such as inadequate infrastructure. However, the primary reason for the high mortality rate in the SME market globally is a lack of access to credit.
Inadequate access to financing occurs when a business is unable to raise the capital necessary to operate on a day-to-day basis or grow into new markets and business lines. Numerous factors can contribute to this lack of financial access.
On the supply side, it could be due to a lack of cash among investors, implying that there is an insufficient investment to go around. Although this is a rare occurrence, it has deprived several enterprises of much-needed money that are otherwise well-positioned to acquire funding.
On the demand side, it could be a result of the inadequate frameworks in place in many businesses as a result of their operators’ lack of managerial skills and financial literacy. This demand-side component accounts for a disproportionate share of the difficulties SMEs confront in obtaining financing.
Apart from having a clear vision, a sound business plan, and a viable product or service, there are important frameworks that business operators must use in order to better position their organizations for investment and leverage.
6 Simple steps you must take to attract funding as an SME in 2022
In this article, I will concentrate on the financial management features of such frameworks where I will be discussing the 6 Simple steps you must take to attract funding as an SME in 2022.
Keep your personal and business finances separate
As an entrepreneur, the first step in increasing your company’s attractiveness to investors is to segregate your personal and corporate finances. As you are probably aware, personal and professional interests do not mix well. A clear distinction between the owner or manager of the firm and the business itself is an indication of financial and business management skills that all investors value in any business.
One of the most effective ways to accomplish this distinction is to open a corporate bank account for your business, which will be used for all business transactions. This enables you to keep more precise records of your business’s cash flow, study consumer behavior trends, and forecast the future more objectively. Additionally, it will assist you in resisting the urge to indiscriminately dig into your company’s cash to cover personal expenses.
Keep track of all your transactions
While it should be self-evident that you must document all of your business’s transactions, many entrepreneurs, particularly those who manage service-based SMEs, fail to do so. As an entrepreneur, you must maintain a digital or, at least, paper-based journal in which you will record all of your business’s transactions, both revenue and expense.
It is not difficult to locate basic bookkeeping software that will assist you in accomplishing this in today’s highly digitalized economy. Many of them are even free to download from your smartphone’s app store. These apps will provide you with a breakdown of your company’s financial and sales performance and a helicopter view of the business as a whole at the intervals you specify (daily, weekly, quarterly, half-yearly, or annually, for example).
Maintain an income for yourself
As I indicated previously, opening a corporate bank account for your firm will assist you in resisting the urge to dig into its finances indiscriminately to suit your personal requirements. That, however, is simply the first step. The next stage is to have your company pay you a wage.
The only way for your business to truly develop is for it to reinvest its profits. If you utilize corporate funds to finance your lifestyle, you will stifle the business’s growth and it will remain stationary for many years. Additionally, what is there? You could even resort to constant borrowing from banks, cooperatives, and other sources to keep the business afloat, which is expensive and challenging for an SME.
Assess your company’s finances on a regular basis, compare them to your own demands and how much you believe you are worth, and determine how much you can reasonably pay yourself.
This advice is equally applicable to employees-based SMEs as it is to sole proprietorships. As an entrepreneur managing an SME with employees, you, like your employees, should be included in the payment system. Any monies you obtain from your employer in excess of what your wage allows should be viewed as a loan from your employer to you, which you must repay promptly.
Of course, there is no regulation prohibiting you from withdrawing profits from your business at the end of the fiscal year, but you should do so only if your business is mature and solid enough to sustain the outflow.
Recalibrate your accounting knowledge and abilities
While you do not have to be a chartered accountant to run a successful business, acquiring foundational accounting skills is a significant advantage. By devoting time to improving your understanding of accounting and financial management, you can set your business on a path of accelerated and sustainable success.
There is no evading the fact that business is all about money. This information is especially useful if you lack the financial means to hire a trained accountant or financial advisor.
Digitize your enterprise
With the damage caused by the COVID-19 Pandemic, every business owner now understands the critical nature of digital transformation. It is no longer a secret that digitally compliant businesses fared better than their brick-and-mortar rivals during the worst of the crisis.
Operating a business has never been easier or more profitable than it is now thanks to digital technologies. It has brought numerous enterprises to their customers’ doorsteps. However, businesses that have not yet adapted risk being steamrolled and driven out of business.
Digitalizing your business can be as basic as creating a website or social media pages for it to facilitate communication with your target audience. Financially, it can be as straightforward as creating a payment gateway on your website for clients to utilize when purchasing your products and services.
Recognize the type of financing your business requires
Finally, not all sources of funding are created equal. Some are provided through loans, while others are provided through equity capital and grants. Prior to approaching a bank, angel investor, venture capitalist, private equity firm, or a donor agency, it is critical to determine the sort of finance your business requires.
A loan is a sort of finance provided by banks. You must repay a loan, frequently on a recurring basis, along with interest. Loans are better suited to firms that currently generate a large amount of money.
Typically, angel investors, venture capital firms, and private equity firms provide equity funding. It is provided to a business in exchange for a percentage of ownership and control in the business, referred to as equity.
The investor wants to recoup the equity capital and profit from the transaction by selling this share of ownership and control to other investors at a greater price in the future. Equity finance is more suited to businesses with cutting-edge business concepts and aggressive growth ambitions.
A grant is a form of money given to a business that is typically not repaid or traded for a stake in the organization’s ownership and governance. It is donated by individuals to enterprises that have a beneficial social impact, solve a social problem, or make a significant advance in their sectors.
Understanding these different sources of finance and determining which one is ideal for your firm will boost your chances of success in raising business cash.
In summary, this article has been able to give detailed information on 6 Simple steps you must take to attract funding as an SME in 2022.