How can SMEs sustain their growth with financial strategies?

As the business begins to grow and experiences the unexpected challenges and changes, if that growth can be sustained, the following should become the focus of all stakeholders:

a) Maintain basic principles of financial management (little foxes spoil the vine): In order to maintain the growth (profit) achieved, it is important to maintain the basic principles such as book keeping, ongoing asset management, proper working capital policy. This requires consistency, discipline and perseverance, because it is very “simple and everyone knows it”.

b) Keep proper accounting and financial records: This needs to be done very well as it serves as the basis for analyzing the performance of the companies using ratio analysis. This is related to maintaining basic financial management practices so that the owner/manager has a better picture of the situation their business might be in and taking appropriate action to salvage it.

c) Distinguish between cash flow and profit: Cash flow is not the same as profit. Profit is usually confused with cash flow and in all cases is very deceptive. A profitable business doesn’t necessarily have to be liquid because of insufficient cash flow. The reasons may be more unpaid debtors in current assets and more shares. An indication of poor working capital management.

d) Manage cash flow by:

I. Regularize its cash flow. Erratic cash flow had been a problem. The company must have a regular cash flow

ii. The liquidity structure needs to be improved. That means there should be a streak to keep the company afloat.

iii. Improve debtor control by controlling loans granted to selected customers who need to be checked taking into account their credit history.

e) Implement recommended changes: Use the right caliber of personnel with an accounting and financial background and similar vision to implement the changes. “Experience is the best teacher”. Recruiting the best available minds to manage finance and accounting is also crucial to sustaining the growth of SMEs. While it can be expensive to have “other equal” but affordable staff available in the labor market, the cost is worth paying as the price of the company’s demise should financial mismanagement occur. In addition, the staff must also be involved in the vision of the founder or the mission statement of the small business.

f) Government regulations and laws: At the macro level, the government needs to enact laws and regulations that could create an enabling environment through which equity and venture capitalists and other financiers interested in SMEs could operate to the benefit of SMEs. The government can also set up special purpose entities or vehicles to fund small businesses by acting as guarantors. Legislation could also be enacted to regulate the financial services sector so that other important tools such as derivatives could be introduced for small businesses.

g) Introduction of Securitization Transaction: Securitization transaction is the art of converting an asset into marketable securities, typically for the purpose of raising cash. The concept is based on international market practice in financial transactions, in which a company pools assets, usually receivables, and later transfers them to a special purpose entity or vehicle that finances the acquisition by issuing securities. Benefits can include:

I. Capital can be raised quickly, e.g. B. to release long-term capital for all permitted purposes, e.g. B. the completion of an investment project and the purchase of additional assets.

ii. Financial risks from loans and other contractual obligations of customers can be partially transferred to investors in the context of securitisations.

iii. Converting illiquid assets into cash: Securitization facilitates the combining of assets that otherwise could not be sold individually to create a diversified pool of collateral against which debt can be issued. Most companies have many accounts receivable. These can be securitized under this concept when the capital and money markets are well developed. At the moment Ghana has conducted only one securitization transaction – the Ghana School Financing Facility – to raise capital for private institutions (see www.IFC.org/structuredfinance, accessed 12 August 2007).

h) Effective structures and advisory services: Effective structures and advisory services should be in place and inform SMEs of their existence and benefits. Sometimes just providing the facilities is not enough, it is also important to inform the users of their existence. This is particularly relevant for Ghana where the literacy rate is very high at 60%-70%. People have recognized the need to start businesses with a clear vision and those visions should not be left to die. “For want of knowledge my people perish” (The Holy Bible).