World Savings Day on October 31 aims to increase awareness of the importance of savings both for modern economies and for individuals. The message is a timely one for East Africa, with Kenya’s gross domestic savings as a percentage of GDP falling last year as result of the higher cost of living.
Every small business and every small business owner should be looking to save, especially given an uncertain global economic outlook and the challenges of accessing financing. Let’s look at some common excuses small business owners offer for failing to put some money aside for a rainy day or to fund future growth – and why these excuses are misguided.
Excuse 1: I must increase revenue before I save
If you’re waiting for your turnover to increase to start saving, that day will probably never come. There will always be another excuse – even when you are earning more.
Consider saving a percentage of every invoice, even if it’s a small percentage – you can increase it once you’re used to putting money away every month. The sooner you start saving, the sooner you’ll start earning compound interest, which is basically free money.
Think of it as investing in yourself and your business. Once you’ve paid yourself, pay interest-bearing debt with what’s left. You might need to revise your budget at first to make it work, but regularly reviewing your finances is always a good thing.
Excuse 2: I need to save towards something
There might be a big-ticket item that you are saving towards, like a delivery vehicle or new shop fittings, but you shouldn’t need a reason to save money. In fact, it’s just as important to save for the unknown and the unexpected.
What would you do, for example, if a fire destroyed your office equipment? Where would you get the money from?
What if it’s month-end and you’re still waiting for that large corporate or government entity to pay for services you delivered three months ago? How will you pay your staff and suppliers when you’re having cash flow problems?
Excuse 3: It’s hard to save when it’s so tempting to spend
Putting your money into a savings account is convenient because you can see it and you can access it whenever you need it. But being able to quickly and easily access your money increases the temptation to make impulse financial decisions. Another disadvantage of saving money in the bank is that you don’t earn much interest.
Putting your money in investment or fixed-deposit accounts, however, produces greater returns, especially for long-term savings. Also, because you can’t see your money, you’ll be less likely to spend it unnecessarily: out of sight, out of mind.
Excuse 4: There is no point when my cash flow feels so tight
It might not be rewarding to save money for an emergency one day. But when that day comes (and it will), you’ll be glad you did. You’ll save yourself the stress of accumulating debt or scrambling to secure finance, which can be difficult for small businesses.
Finding excuses not to save money is easy: cash flow is tight; there are additional expenses this month; the old office copier is overdue for replacement. Start by setting a financial goal – like saving the equivalent of six months’ revenue – and take small steps towards it.
Excuse 5:I have no disposable cash to save
Cutting operational costs in your business is a quick way to free up money that you can invest.
Here are a few ideas:
- Share office space with another small business or adopt a virtual business model, which doesn’t need a physical office, saving you on rent and operational costs.
- Run your business in the cloud. You can access just about all your business management software in the cloud, which means you don’t need to invest in expensive hardware and the skills to maintain it. Cloud-based accounting solutions also help you manage your inventory, so money isn’t tied up in surplus stock.
- Pay invoices on time to avoid interest and late payment fees. Take advantage of early payment discounts.
- Cut down on meetings so your team can focus on strategic functions. Hold important meetings over Skype or Zoom to save time and money on travelling.
- Outsource ad hoc work, like design and copywriting, to freelancers rather than hiring a full-time resource. Hire interns to do admin work so that you can spend more time on strategic planning.
Money – making it, saving it, sourcing it – is arguably the biggest challenge of running a small business. Start making your money work for you – not just today but in five, 10 and 20 years from now.
Nikki Summers, the author of this article is the Regional Director for Sage in East Africa.