Mike has had more than 13 years of experience in the Banking/Financial sector, working with the UAE Government as a management consultant in Dubai for 3 years and a Master Trainer for JKJR in Malaysia for 2 years. With numerous years of Financial experience under his belt, we speak to Mike about common mistakes made by SMEs when it comes to financial planning and how to carefully manage a company’s finances.
1. What are 3 common mistakes made by SMEs when it comes to financial planning?
Expanding too soon – Most companies tend to be overly optimistic with their growth plans. What I have found is that expanding business before it has the key resources (cash, access to equity, access to credit) or key structure in place ( key staff or management, well entrenched business systems, secured supply lines in place) can lead to disaster. Don’t underestimate slow positive organic growth.
Failure to seek proper advice and getting an external professional opinion – not seeking advice from someone with a different perspective, or someone that is very knowledgeable in business transactions (accountants, lawyers, financial planners, strategy experts) can be deadly. Good business owners always seek counsel from someone with a bigger perspective and surround themselves with the right people and advisors.
Failure to manage cash flow – cash flow is vital for all business operations. It is all very good to appear profitable in your accounts, but it is not good if those profits don’t convert to cash in your bank account. Many issues like reliance on one key customer, taking on to too much that the operational needs are affected, failing to adapt to change are some of the major factors that can lead to cash flow issues.
2. What role can fintech play in evolving my business?
Financial technology (Fintech) is used to describe new tech that seeks to improve and automate the delivery and use of financial services. At its core, fintech is utilized to help companies, business owners and consumers better manage their financial operations, processes, and lives by utilizing specialized software and algorithms that are used on computers and, increasingly, smartphones.
Essentially, Fintech now describes a variety of financial activities, such as money transfers, depositing a check with your smartphone, bypassing a bank branch to apply for credit, raising money for a business startup, or managing your investments, generally without the assistance of a person. These are daily things that most SMEs are already practicing and hence for new companies or older one that haven’t adopted these practices will be left behind with the benefits and best secure practices.
3. My company is looking for funding. How can we go about securing a loan?
Firstly, companies will need to understand their qualifying criteria and the financial landscape in Singapore :
Types of Lenders – Banks, Non-banks Financial Institutions, Peer-to-Peer Lenders, Private Lenders
Documents – ACRA Business Profile, Financial Statements, CBS Report, Bank Statements, Income Tax Statement
| Checklist – SME Profile No. | Recommended SME Profile |
| 1 | SME has 12 months of operations. |
| 2 | SME owns a corporate bank account. |
| 3 | SME is a Private Limited entity. |
| 4 | Guarantors (Director and/or Shareholders) for the loan have two years of Notice Of Assessment (income tax statement). |
| 5 | 100% of the shareholding structure is owned by SG/SGPR (not a nominee shareholder). |
| 6 | Two years of financial statements (Profit and Loss, Balance Sheet). |
| 7 | SME is looking for a business loan and not angel investors or venture capitalist. |
4. What are some steps I can take to improve my cashflow?
Offer Discounts for Quick Payment
Develop a discount program to encourage quick payments, collecting cash owed to you as fast as possible. Normal payment terms allow a 30-day period for remittance after the receipt of an invoice, with a 2% discount if paid within the first 10 days. You can offer more, less, or no discount for payment, depending upon your needs and your customers’ previous pay habits.
Penalize Late Payers with Interest Penalties
While collecting the interest may not be possible in all instances, the presence of the policy will emphasize the importance of on-time payments to your customers and at time create a set of discipline for prompt payments both from internally to externally.
Utilize invoicing & accounting software
Utilizing payment and accounting software can ease the burden of invoicing while increasing the speed and regularity of it. Zoho, FreshBooks, and QuickBooks are all excellent options and can offer you instant access no matter where you are. This likely won’t require any new equipment, although a point of sale machine could help with certain changes. If you’re not already using accounting or invoicing software, the new year is an excellent time to start, as they can also help you manage and organize your monthly, quarterly, and yearly finances
Sell or Retire Excess and Obsolete Equipment or Inventory
Idle, obsolete, and non-working equipment takes up space and ties up capital which might be used more productively. Equipment that has been owned for a longer period will usually have a book value equal to its salvage value or less, so a sale might be beneficial. Excess inventory can quickly become obsolete and worthless as customer requirements change and new materials are introduced. Consider selling any inventory which is unlikely to be used over the next 12 months unless the costs to retain it are minimal and the proceeds from a sale would be negligible.