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Celebrating International MSME Day and the role of accountancy in MSME sustainability

28 June 2021

Celebrating International MSME Day and the role of accountancy in MSME sustainability

Authored by Faith Ngwenya, Technical and Standards Executive at the South African Institute of Professional Accountants

June 27 was International Micro, Small and Medium-sized Enterprises (MSME) Day and this year the theme was “MSMEs: Key to an inclusive and sustainable recovery”.

There’s no doubt that micro, small and medium enterprises will play a huge role in rebooting both the local and global economies. Yet, with no end to COVID-19 in sight, many of these smaller businesses are struggling just to keep going.

Now is not the time to bet everything on the latest trending advice from world-renowned management gurus. Instead, it’s a golden opportunity to get the basics right because this is where most businesses fail.

When the economy is good, we can get away with neglecting the basics to a degree. But when times are tough, correcting poor elementary business practices is the most positive step we can take.

None of these are more important than having a strong financial management function. They might sound boring but making the following points a daily priority can literally save your company from disaster.

Master cash flow

Being able to match the timing of cash payments with that of cash receipts is both a science and an art that every business manager must master. It becomes even more essential when revenues dip, along with the discipline to slow down spending to keep the two in sync. Cash may no longer be king but it is still the fuel that keeps MSMEs in operation.

Cut costs ruthlessly

Hidden costs and unchecked spending can eat into a company’s profits and cash flows. They’re also sources of much needed finance just waiting to be discovered. So it’s not only crucial to weed them out and discard them mercilessly but also to develop and implement cost saving strategies that ensure not a single cent goes to waste.

Budget for reality

Budgeting might seem like a chore but not budgeting means you’re flying blind, with no idea if you even have enough fuel to reach your destination. A good budget tells you if you have enough to make it to the end of the month and allows you to reallocate scarce funds ahead of time to where they’ll do the most good. Budgets are not cast in stone but in sand and can be adjusted as circumstances change.

Collect sooner

Do you follow the industry average collection rule of 45 days? That generalisation may not be appropriate for your type and size of business in your industry. Find out the appropriate debtors days metric for your company and start using it immediately. You may be allowing delayed collections that could ruin you in a down economy.

Learn to market on a shoestring

The common advice is that when times are tough, you need to market more. That doesn’t mean you need to spend more on promotion, though. By being creative and adopting digital marketing practices, you can reach more prospects through social media and organic search results. Sharing useful information that’s relevant to your market can help you build a reputation for being value and service oriented.

Stock for demand

Good stock management is imperative right now and you need to align your stock holding with demand. It’s important to avoid overstocking and incurring storage costs. At the same time, you can’t afford to understock and lose business because of out-of-stock situations. So you must monitor customer buying patterns more closely and plan accordingly.

Avoid the tax trap

With SARS eager to collect every cent it can find, small businesses need to carefully plan and manage their tax obligations. It’s easy to forget tax but gross non-compliance and eventually having to catch up on unpaid tax and penalties can throttle cash flow to the point a business must close its doors. Even then, SARS could continue to pursue the owners, regardless of supposed limited liability, and owner-managers are particularly vulnerable.

The Companies Act stipulates that a director becomes personally liable if it can be proved they were negligent in discharging their responsibilities as directors of a company. Using PAYE or output VAT as a cash flow lever could be seen as negligence and as a result, you may lose the limited liability provided by the company or close corporation as a form of business entity.

Get a good accountant

One of the top causes of business failure is poor financial management, so it’s not optional. But many MSMEs are too busy with daily operations and strategic management to master it.

An easy solution is to engage the services of a professional accountant. The upside to this approach is that modern accountancy practitioners don’t just implement sound financial management practices and strict cost controls.

They’re also exceptional strategic business advisors who are already trusted by millions of MSMEs to provide reliable guidance on managing their entire organisation.

In addition, accountants are a great single source for guidance and assistance on obtaining financing, TERS applications, business grants, tax compliance, and much more.

That’s three birds with one stone.

Be a kind community

According to SAIPA member and small accountancy practice owner and Professional Accountant (SA), Amanda Roothman, now is the time for community kindness. “I’ve noticed overwhelming support between small businesses during this period, with many sharing their knowledge and expertise with each other,” she says. It’s good to be mindful that, while the basics are essential, so is coming together in the spirit of ubuntu. The fellow businessperson we help today may be the one who helps us when we are in distress tomorrow.

Celebrating MSMEs

International MSME Day was created to remind us of the important role micro, small and medium enterprises play in inclusive and sustainable economic recovery.

SAIPA, our staff and all our members salute your spirit of entrepreneurship and the pure grit that keeps you going.

To help you get the most from your accountancy function, we recently released Episode 1 of our SAIPAconnect video series, titled Which Type of Accountant is Best for My Business? Watch it here.