Typically, entrepreneurs go into business because they have identified a business opportunity. Equally usual is that few understand the mechanics of managing the cash flow of a business, even if the business is apparently successful in the short term. This inability to manage cash flow is one of the greatest barriers to receiving finance when entrepreneurs most need it; non-payment is just too great a risk for the financier to take.
To address this challenge, The South Africa Financial Sector Program
(FSP) partnered with Blue Financial Services, a financier that specializes in, among other types of finance, lending to owners of small and medium enterprises (SMEs) who want to buy franchises. To mitigate the risk of lending to SMEs desperate for finance to grow, FSP provided technical assistance to Blue to develop “Successful Financial Management for SMEs,” a short course for potential and early-stage borrowers from Blue to help them understand the flow of money through their business.
Blue requires clients to participate in training as a condition of receiving a loan, including how to manage their businesses and how to sell their product or service. This addition to the training program has been designed to address the challenge their clients face with managing their loans, as well as their day-to-day cash flow operations.
To date, the course has been piloted with 20 SMEs, of which nine have been awarded loans from Blue. Nkrumah and Cynthia Phala bought a computer hardware franchise with a loan from Blue and in addition to this, have a fast food outlet in Polokwane South Africathat they want to franchise.
Says Nkrumah about what he has learned from the course: “If you don’t know what your cash flow is about, you won’t be able to control the cash in the business … before now, we were not measuring stock and did not know how much cash we had in the business or how much profit we’ve been making, so this course has really helped us. At least now, we know what to expect from and ask our auditors!”