10 Tips for SME Financing in Kenya

Being an entrepreneur and a small business owner is all about following your dreams, being independent, and calling your shots. In this article, we give you tips for SME financing in Kenya.

Being a small business owner is, however, also about being responsible, which means keeping a tight grip on your company’s financial situation.

SME Financing in Kenya Tips

Here are ten financial tips that will help entrepreneurs in managing SME financing:

1. Don’t mix business and personal expenses

As a small business owner, you tend to be super connected with your company and sometimes both feel like the same entity.

However, as you mix up your personal and business accounting records, it’ll create a mess when it comes to filing taxes and calculating your company’s valuation.

It will also create a burden for your accounts when your business is losing money.

Also Read: Top mistakes in applying for a small business working capital loan

2. Don’t neglect your finances

Make sure to set up an emergency fund, retirement account, and get some health coverage – after all, you’re not invincible. 

Running a small business is no easy task, but it can be done if you stay organised and disciplined.

As with all things, make sure you’re using common sense when you make decisions, and resist the temptation to make any massive purchases without consulting your finances first.

3. Tips for SME Financing: Hire a professional

While you may be able to keep a handle on a business that you run by yourself, once you start expanding and getting employees or contractors to help, or once you have enough clients to keep you busy 40 hours a week, it’s time to hire a professional.

Knowing that your finances are especially important in case of an audit and having all of the information you need at the ready when an investor comes knocking is worth the investment.

4. Tips for SME Financing: Reinvest in your business

Reinvesting in your business is one of the best advice for SME Financing this year.

That said, your business will very likely experience times of rapid growth and incredible profit, which is great!

During this time, resist the urge to reward yourself too much (a generous bonus is okay), and instead reinvest the extra capital into the company.

This may mean hiring more people to keep the momentum going, updating your software, developing new marketing materials, or opening an investment account for your company.

5. Continually make projections and plan

Small business owners must continuously keep track of all the expenses to stay on top of the cash flow.

Establish a budget and stick to it while being highly aware of where every shilling is going.

Entrepreneurs should be able to anticipate future obstacles to have precise financial projections and establish realistic financial goals.

Since you never know for sure what will happen, it’s best to prepare for the worst-case scenario.

For example, keep your regular job to maintain a consistent source of income or have an emergency savings account.

All in all, careful research and planning can decide the success of a startup.

Also Read: How to reduce credit risk in your business

6. Don’t mix business and personal expenses

There are so many reasons not to incorporate your business and personal accounts, including tax issues, personal liability, and jumbled accounting records, to name a few.

Resist the urge to secure your business finances with personal funds because it will create a mess you will have to deal with later on.

The best way to maintain a clear separation of your expenses is to set a personal budget and a business budget.

7. Negotiate with vendors before signing a contract

Sometimes you have to dig a little for a good bargain. When making purchases from vendors or contracting with suppliers, try negotiating for a better deal.

Don’t forget to examine purchase terms like late payment penalties and grace periods when making a decision.

Sometimes being given an extra 30 days to pay can save you more than a 5% discount off the top.

8. Pay your bills on time

Just as you do with your finances, you must pay all of your business bills diligently this is one of the ultimate tips for SME Financing in 2019.

Credit card and loan payment late fees can cost you dearly, but paying small late fees on vendor and utility bills consistently adds up, too.

The same goes for taxes: paying too late can result in severe penalties.

Set up monthly reminders to make sure no business bills are falling through the cracks. For growing businesses, especially, the profit-loss margins are thin.

Avoiding late fees could be the difference between ending the year in the red or black.

Also Read: Tips for better business cash flow management

9. Tips for SME Financing: Prepare for significant expenses

Don’t wait to be taken by surprise just because you underestimated your costs.

When creating your budget, it’s always best to overestimate your expenses a little to cover any unexpected cost increases and incidentals.

10. Be prepared for downturns and bottlenecks

Every small business has its ups and downs.  For some, the reason is seasonal factors that influence their market.

For others, slow-paying customers can hurt cash flow.

While seasonal fluctuations are natural to anticipate, cash flow problems can arise quickly and unexpectedly.

When they do, having an established relationship with a lender can be a lifesaver.

If borrowing from a traditional lender isn’t an option, you might consider invoice factoring to get the cash

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Beth is a Kenyan Journalist with a passion in matters Kenya. She is knowledgable about the country of Kenya and shares her knowledge with our readers.

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