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How Can Small Businesses Overcome Financial Challenges And Thrive?

BY Soko Directory Team · February 28, 2020 03:02 pm

Kenya thrives on the wheels of Small Medium Enterprises (SMEs) that are said to contribute at least 45 percent of Kenya’s GDP and about 86 percent of the employment opportunities.

For years, Kenyans in the SME sector have blamed financial institutions for refusing to give them credit. Financial institutions, on the other hand, say that SMEs are to blame for the majority do not have what it takes to get credit from a bank.

According to Mr. William Kinai, a trainer with Kenya Bankers Association’s SME program Inuka SME, entrepreneurs need to follow the necessary steps while starting a business.

“Have passion / some skill for the business you want to start. Turn your hobby into a business.

Test the market once you have that idea- is there space for you in that market? Who are     your competitors and find a niche- find something different that you can do for your market( competitive advantage).

Do your research – ideal if you put it on paper- this is what we call a business plan- resources you need , will you need to hire people? How much capital for rent, buy the materials you’ll need and come up with the costing for what it takes, how much you need to sell in order to turn in profit, to cover annual costs.

Acquire your licenses- the only way you can operate legally is with your licenses, go to your county government and if you need regulatory licenses visit the bodies to avoid problems with regulators and getting shutdown before beginning.

Get a space, negotiate a lease to accommodate the scope of your business and that gives you space in the market.

Acquire the equipment you need- and get competent people- there is a cost implication.

Market- get people to start making enquiries about your brand

Ensure that your products/ service is priced at a level that you are able to recover your operating cost and competitive enough to get your customers buying your product- ensure you get a profit in the long term- it is from this profit that you will be able to grow your business overtime

Retained earnings- they are easily accessible,” said Mr. Kinai.

Mr. Kinai says everybody who wants to start a business, must have a business plan. He says:

“When developing a financial plan the following factors should be considered.

 What is the strategic objective of the business? What do you want to achieve by doing this business How will the strategic objectives be achieved?  What are the strategies employed to achieve your strategic objectives?  What is your work plan? How will you execute your strategy over strategic planning?

In the financial plan, the business owner: Makes projections on what volume of sales will be necessary to cover the costs of the business operation. Estimate the costs of doing business.  For example, how much will have to be paid rent of business premises, purchase and maintenance of machinery,   salaries of employees, licenses, insurance?  

Established the entrepreneur determines how much will need to be sold to cover operating costs.

Consider the amount of capital she has and must answer the question: Will the available capital be sufficient to finance the volume of sales required? Answering this question reveals either the adequacy of financing or the financing requirement.”

The financing requirement is the amount of money that the entrepreneur will need to raise from their own resources or externally in order to achieve the volume of sales desired.

On tax compliance, Mr. Kinai says that a tax compliant small business will have easier access to external financing from banks and the larger financial sector.  Access to external financing by tax compliance small businesses is not just because the business is tax compliant, it is as a result of a number of positive qualities that are present in tax-compliant organizations.

A business whose financial results are credible has enhanced access to external financing. For instance, banks require audited financial statements before they can advance credit facilities to a business entity. This requirement is for the purposes of the lenders due to diligence processes as well as compliance to the Central Bank of Kenya’s prudential regulation which requires that loan applicants present “Audited financial statements (last full year at a minimum although, last three years preferred) for the corporation.” (Central Bank of Kenya, 2013). Non-bank lenders and private equity investors will also require audited financial statements.

For more information on Inuka SME, Click Here

Soko Directory is a Financial and Markets digital portal that tracks brands, listed firms on the NSE, SMEs and trend setters in the markets eco-system. Find us on Facebook: facebook.com/SokoDirectory and on Twitter: twitter.com/SokoDirectory

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