SMEs Urged to Keep Track of Cashflow

Small and medium sized enterprises have been advised to have regular cash flow reviews to strengthen, grow and reposition their businesses.

This way the SMEs will be forewarned and can react to unforeseen problems.

A combination of post-election violence and a general rise in prices of goods and commodities, inflation, in the five months into 2008 has impacted a number of businesses. Inflation has risen to a ten-year high of 26.6 per cent.

Consequently some businesses, especially SMEs, have found it hard to pass on price increments hence affecting the movement of money in and out of a business .

Fina Bank group head of risk, Mr Robert Warlow, while speaking at a workshop organised for SMEs, emphasised the importance of cash flow.

"Cash flow is to the business what blood is to the human body," he said. "Unfortunately not many businesses pay attention to it, instead they focus a lot on increasing sales," he said.

Fina Bank has fully focused on (SME) in the last three years and continually offers free workshops mainly as a service to clients.

Apart from a continuous review of the projections, other solutions factors to business success are cutting expenses, reviewing terms of trade with customers, establishing a proper payment and invoicing system.

"Many small business owners hate paperwork and one aspect of poor cash flow is basically down to poor record keeping," said Mr Warlow.

He also emphasised the need of the SMEs to be in constant touch with their banks during sustained periods of cash flow problems.

Facing near collapse under the weight of its debts, Retail chain, Uchumi, negotiated with its bankers KCB and PTA bank. Uchumi has since had a turnaround recording net earnings of Sh113 million.

The SME sector has attracted increased attention from private equity companies, venture capitalists and other financiers as it contributes about 18.4 per cent of the country's total wealth as measured by Gross Domestic Product (GDP) and 25 per cent of the non-agricultural GDP, while employing 74.2 per cent of the country's total labour force.

SMEs are defined as formally registered businesses with five to 100 employees and with an annual turnover of between Sh6 million and Sh100 million. Globally, SMEs contribute 53 per cent of jobs in developed economies and as high as 88 per cent of jobs in Japan.