A majority of Small and Medium Enterprises (SMEs) that operate in Kenya have for a long time failed in their operations. The reasons for failure are not necessarily environmental issues but deficits in their management as well as daily operations.
One of the outstanding challenges hindering their expansion is managing their financial operations as well as financial management. Because of the perceived risks involved, SME financial management have often had a difficulty in starting-up with funds, expansion and working capital. In those lines a number of SMEs have primal financial management that makes them prone to financial problems.
With the stepping in of bigger financial institutes and communication firms in the support of SMEs, they therefore need to rectify the situation. SMEs should take now take some practical steps to improve their financial management.
The objectives of financial management especially when SME driven would be to:
Develop relationship with banks
SMEs should develop good relationships with banks and other financial institutions because lenders are their main source of finance. The SMEs are advised to maintain a regular contact with banks and seek advice through socializing with bankers as well as seeking future plans and get advice from bankers. The sme finacial management systems could as well consider contacting banks that they do not presently transact with and identify ways to work with them and build a contingency plan to maintain the relationships with them.
Establish adequate credit lines
They as well need to establish adequate credit lines although there is an expense to the same. They should establish their credit lines in advance because this is a better strategy instead of waiting until need arises since this is tougher in the long run. They should also consider talking to a range of banks, including those are already in partnership and at least one other reputable bank that they do not to put credit facilities in place. This can be done by explaining to these financial institutions on their future needs and plans and identify why the credit line might be needed. The main objective of this is to negotiate with the banks for the best possible terms on establishing a credit facility.
Use asset based financing
In situations where the need arises, SMEs can consider using asset based financing. Selling account receivables, and borrowing against assets like properties, plants and equipment are all potential sources of financing. However, SMEs should approach this option with caution and always ensure that the interest payable and other costs are justified while at the same time other financing options that are available thus avoiding the auctions hammer.
Formulate a strong cash management policy
Another viable alternative sound financial-management practice is an argue for SMEs to formulate a strong cash management policy. Poor cash management is the most common reason for the failure of a number of SMEs failures. They should know about their daily cash positions by regularly checking their cash and bank balance. Their accountants should be able to prepare regular cash flow statements and monitor cash inflows and outflows.
In general, SMEs must understand the importance of financial management to should ensure that they have enough cash flowing in the business. The primary source of income for the SME owner is profit. But sufficient profit needs to be retained in the company to see it through difficult times as part of strong financial management skills. This calls for financial discipline in the management as a tool to prevent the firm from financial crisis.