The goal of your small business is to, probably, become a big business one day. But you shouldn’t jump the gun and run your business finances like one.
In Kenya, the Government categorizes size of business by amount of turnover you realize and the number of employees in your venture. So, if you have less than 100 employees you are classified among micro, small and medium-sized enterprises.
The Micro and Small Enterprise Authority (MSEA) is the Government’s oversight body on this sector.
Let’s take at some of the pitfalls of managing your business finances like a big business, and what you can opt to do instead.
1. Small businesses are less liquid
Small businesses may be the most flexible but there’s not much they can do to exploit this when you consider the fact that they struggle for liquidity. Any big business has greater room to wriggle in raising short term finance, so they can take greater risk with respect to working capital. On the other hand, small businesses are designed to be, primarily, concern with day to day operations. It’s expenses should always be lean.
2. Small businesses have varying profits
A big businesses enjoys a sense of stability, that you would consider stagnation, when it comes to profit. That’s why they can even issue profit warnings, as the’re doing right now in Kenya. This means they can make more ranged plans. A small businesses, more or less, operates on short and mid-term basis because primary goal is survival. Such a business may also be relying on a few clients so you have to pray they do well for you to do well unlike, say, betting firms in Kenya.
3. Small businesses are survival oriented
Big businesses have an easier time in financing long term projects. In Kenya, financial institutions do not really seek long term partnerships with MSMEs. In their view, small businesses in Kenya have a high mortality rate. According to Government stats, almost half of all new businesses in the country close shop by the second year.
DON’T MISS: OPPORTUNITIES FOR YOUNG KENYANS!
To pursue long-term agendas, owners of small enterprises are encouraged to look to partnerships and joint-ventures with their peers. They are also advised to get under the wings of a big business – this is common in industrialized countries where big firms source components from smaller specialized firms.
4. Small businesses are not value maximizers
There’s something funny you should know. Big businesses strive to eliminate jobs while small businesses create them but guess who has the Government’s ear? A small businesses is still very much tied to the personality of its owner and they also have absorb the expenses of growing into a bigger business. If you obsess with cutting costs, you will strain your growth. Big businesses have to cut costs because their gains of pursuing increased growth is ever reducing.