Small-business savvy is key to the financial security of SA women

Setting your personal finances straight is the very first step on the road to small business success, according to Lucille Sikosana, Business Development Manager at Old Mutual Investment Group.

The Covid-19 pandemic has resulted in a catastrophic loss of job opportunities and income for women. The latest National Income Dynamics Study (NIDS) Coronavirus Rapid Mobile Survey reports that two-thirds of jobs lost between February and April 2020 were among women, while the Old Mutual Savings and Investment Covid-19 Special Report (OMSIM) revealed that 25% of employed women were unable to work during the lockdown.

This reality has sparked a renewed interest in entrepreneurship among South African women, according to Lucille Sikosana, Business Development Manager at Old Mutual Investment Group. "Entrepreneurs are made and not born; the Covid-19 pandemic will inspire many women willing to take the risk to start their own business. However, many will fail unless they appreciate the importance of personal financial management," says Sikosana.

We know that between 70% to 80% of small businesses fail within the first five years. Sikosana says external threats like funding, the economic downturn and social challenges created by the Covid-19 crisis could be a hurdle for women considering entrepreneurship. "The current state of the real economy means that both business and consumers are looking to spend less or not spend at all, creating a threat or opportunity depending on how the entrepreneur plans to go to market with their new product or service," she says.

While the external macro-environment is an essential consideration, according to Sikosana, entrepreneurs don't sufficiently consider their internal strengths and weaknesses before starting a business. "According to an article published by the University of the Western Cape, 40% of the success achieved by small-scale enterprises is dependent on the business owner's skills," says Sikosana.

She says that in her experience entrepreneurs underestimate the importance of having their money matters in order before launching a startup. "Mastering the basics with your own money hugely improves your chances of business success," she says.

"That's because it's impossible to manage your business money well when your personal finances are in a state. Likewise, a failed business can wreck your personal finances for decades."

The core principles of personal finance and business management are identical according to Sikosana, who offers five principles every entrepreneur should consider.

Keeping tabs on your money
Successful business people know where every Rand goes — they know by the 25th of the month how well their business did financially the month prior. Keeping tabs on the movement of your money, especially when large amounts are involved, helps to project your future revenue, expenses and cash flow issues.

Strict fiscal discipline
Successful businesspeople use budgets and realistic sales projections to make money decisions. When you're running a startup, it's easy to get stuck into the work and forget the bigger picture. However, successful entrepreneurs don’t spend money on events or travel that is not budgeted for. They make time to generate and oversee a budget, prepare and review forecasts and regularly check their performance.

Keep cutting your expenses, month after month
Revenue and expenses are essentially what comes in (sales) and what goes out (expenses), respectively. By keeping your costs low and your income stable or high, you generate a profit.

Lockdown forced many of us to scrutinise – and trim – every possible expense. If there's anything you can still afford to cut back on, be ruthless and do it now. If there's really no leeway left, simply know that 'cutting your cloth' is not a once-off event. In personal finances and business management alike, it's a principle to live by and an exercise to revisit every single month.

Get rid of bad debt
Successful business people understand how to use a line of credit. Whatever the state of things, you should always remain committed to paying off high-interest debt — such as your credit and store cards — as soon as possible. Freeing up money destined to be paid in interest is precisely what will make it possible to start saving. Remember that high levels of personal debt reduce your access to business finance, too.

Manage your cash flow and grow your emergency fund
Startups go out of business, not because of a lack of sales or profit, but because they have too little cash to pay creditors or cover an emergency expense. As a rule of thumb, it's essential to start an emergency business fund equivalent to one quarter's worth of overheads should you hit a cash flow crisis or face a disaster live we've seen with the Covid-19 pandemic.

To be a successful entrepreneur, Sikosana says one should organize and execute around their highest priorities. As Franklin Covey says, “the things that matter the most should not be at the mercy of things that matter the least,” she concludes.