Each month we are inviting a Guest Expert to give us tips and advice that is helpful to SME owners. This month we have Kelebogile Mooketsi, a registered and accredited Debt Counsellor and author of new book "Our Debt Stories, NO MEANS TO AN END!"
Here she answers some of our questions:
What are the 4 most common reasons why people get into debt and how can this be prevented?
- Bad habits and attitudes towards money that lead to poor financial decision making. Always be cognisant of how much money you have available.
- Lack of solid financial literacy. Take a look at http://commerce.alaska.gov/ded/dev/mia/presentations/SimpleStartClass.pdf for the basics of financial management.
- No understanding of consumer rights when it comes to credit. See http://www.ncr.org.za/index.php?option=com_content&view=article&id=109 or browse the website of the National Credit Regulator to familiarise yourself with the credit process.
- Not knowing and managing your debt to income ratio. Check out http://www.smetoolkit.org/smetoolkit/en/content/en/7516/Carrying-the-Debt-Load to see how to determine your debt comfort zone.
What are the Top 3 responsible financial habits a small business should get in to?
- Relentless management of your cash flow
- Always negotiate and ask for discounts
- Make sure you have a robust business finance plan which you adhere to. Use www.Freshbooks.com to plan and manage your finance and accounting.
What is the best way to obtain funding for your business?
"Use credit as a last resort. Rather explore avenues that can assist you in up scaling your cash flow such as enterprise development organisations or business incubators.
Look for alternative funding options such as equity funding, angel investors, bridging loans or use Government Agencies such as SEFA, NEF, NYDA."
What is the best way to manage your debtors?
"Be consistent with your payment terms and make sure you have them in writing. Don't make allowances for friends or family." If you or your business is in financial hot water, consider these four options:
- Self-help using realistic budgeting and other techniques
- Debt relief services, like credit counselling or debt settlement from a reputable organization
- Debt consolidation
- Declare bankruptcy
How do you know which will work best for you?
It depends on your level of debt, your level of discipline, and your prospects for the future
And lastly - take a look at Kelebogile Mooketsi's 8 Step Check List for Managing Cash Flow
- Calculate your start-up costs correctly
- Keep overheads down
- Offer small discounts to encourage early payers
- Ask customers to pay upfront
- Collect customer payments BEFORE paying suppliers
- Maximise supplier payment terms
- Outsource to save on hiring costs, especially at start-up phase
- Think of ways to create passive income from your business