8 Financial Management Considerations For SMEs (Influencer Roundup)

Publishing this article in the heat of the COVID-19 outbreak, it's a valid time to reflect on financial planning, mitigating risks, and handling the global economic losses hundreds of millions of businesses have to struggle it in the coming months.

The impact on quarantines, sick leaves, isolation has led to closing airports and borders, and a temporary shutdown of schools, bars, clubs, even restaurants across multiple countries out there.

While the focus is on the virus itself, it's worth taking a moment and reflecting on a question we asked 8 financial gurus:

"What is the most difficult part of financial management for most SMEs in your experience that matters the most to their success?” 

Here's what they came up with.

1. Maintaining Competitive Awareness

"It is essential in today’s fast changing marketplace that financial SME’s ensure their clients have the internal systems, controls and processes in place to ensure sustainability and success. However, the rapid rate of change in the external environment threatens to swamp SMB’s. In addition to the standard SWOT analysis, I undertake a PEST analysis with companies. This allows corporate management to identify and capitalize on opportunities and mitigate risk from emerging trends in the political system (P), the economy (E), changes in societal norms (S) and the impact of innovations in technology (T)."

Ashford Chancelor, Practice Manager, vcfo

2. Accounts Receivable Practices

“The toughest thing about financial management for small businesses is collections. Everyone thinks they can pay a small business vendor last or late at best. You must build accounts receivable practices so that you can manage your customer payment process upfront. Take all forms of payment, and as soon as you can establish a business line of credit with your bank so that you won't be left high and dry when payroll is due and your client hasn't paid.”

Melinda F. Emerson @SmallBizLady Author, Fix Your Business; 90-Day Plan to Get Your Life Back and Reduce Chaos in Your Business

3. Plan Fiscal Scenarios

“Planning for most, if not all, fiscal scenarios.  In a perfect world, projects are completed according to the schedule, clients pay on time and expenses are predictable.  People crave consistency and certainty, but financial planning for business owners is anything but. Business owners often get into financial trouble when they fail to account for various possibilities and schedules when it comes to cash coming in and out the door.  A surprise expense or an unexpected delay in payment can be catastrophic to the financial health of the business if contingencies are not available. When it comes to financial management for small businesses, hope and aim for the best but prepare for the worst and everything in between.”

Terence Channon is a partner at TechOps Partners, a professional services firm focusing on digital transformation, business process automation and technology consulting.

4. Estimate Your Retirement Years

“People have to figure out how much they expect to spend in retirement, and how much income they expect to need to pay their living expenses.  You have to make decisions about your future lifestyle, and estimate the costs of each component part. And this is complicated by questions like whether you plan to work during retirement years, what hobbies you plan to pursue, whether you’ll keep your current home or downsize, and how long you’ll live. You look at this list of questions and realize that anything you write is an estimate or an attempt to quantify something that you cannot possibly know with precision.”

Alexander Lowry, Executive Director of Gordon College’s Master of Science in Financial Analysis

 5. Know Your Numbers

"The most critical item I have seen is the ability/inability of SMEs to “know” their numbers. 

It is very important that owners/CEOs/management of companies stay on top of their numbers/results and have a high level of confidence that the results are correct and accurate.  This comes into play especially when reporting results to third parties such as lenders. Good people must be in place, whether employees or outside help, to ensure this happens. 

The inability to have accurate and timely numbers has ruined many a business.  I have been engaged by a number of companies in my career for this very reason."

Andrew Tucker, CPA, CGMA, MBA at AETuckerConsulting, LLC

6. Balance Detail With Expediency

“The hardest part of financial management -- which starts with good accounting -- is the constant struggle to balance detail with expediency.  It takes time and work to get all of the financial details you might want to make every decision, and the more detail you get the less accurate it is likely to be. The better solution is to identify just the 3 to 5 key numbers your business depends on, then work to simplify your accounting and reporting so that you can focus on those financial metrics that really matter. SMEs (and business owners in particular) should be working to streamline their financial management rather than spending time gathering every detail.”

David Worrell, Small business CFO-on-demand, and author of The Entrepreneur's Guide to Financial Statements

 7. The True Cost of Capital

"In my experience, the most difficult part of financial management for SMEs is not understanding their true cost of capital. Many business owners get stuck with high-interest short term loans simply because they are fast and easy to qualify for. With the lending marketplace being made up mostly of these types of loans it is easy to get sucked in and many business owners are stuck with 30-50% interest loans with weekly or even daily payments and this drains the business of its cashflow."

Adrian Olinski, Chief Operating Officer at TruStart Financial

 8. Cash Flow Analysis

“Consider the #1 reason why small businesses fail: poor cash flow. Many a profitable business has failed because it simply ran out of cash. Avoid a similar fate with cash flow analysis, starting with a simple but crucial cash flow statement.

Building a cash flow statement is the first step to effective cash flow analysis, which doesn’t have to be difficult. You’ll find free templates and many helpful resources for both methods of preparing a cash flow statement online. Understanding where your company’s cash comes from, and what you spend it on, is a simple but crucial step for every small business to not only survive, but thrive.”

Eddie Davis, SVP of Sales & Operations for FINSYNC, a consolidated cash flow management platform focused on helping businesses grow

My Take

While my background isn't in finances, my immediate family has been running an accounting firm for the past 25 years.

If there's one thing I would recommend as a long-term strategy in the long run, it's a simple reminder: diversification.

Diversifying funds and revenue sources can be critical to mitigate any threat and survive any crisis out there. And I'm talking about a diversification as deep and broad as possible, including different banks (in case of a foreclosure or another incident with the bank), different payment gateways, recurring revenue sources, and businesses covering the highs and lows of other corresponding companies you may be running.

Think of a digital business and a brick and mortar, one leveraging trends and one tightly related to needs on Maslow's pyramid. The further you diversify (and, of course, consider longer term investments in stocks and real estate, to name a few), the better off you will be in the event of a crisis.

What is one valuable piece of advice you would share with the audience?