Savings hacks: Four New Year’s resolutions for new entrepreneurs

René Botha | 19 January 2024

René Botha is the regional investment Manager at Business Partners Limited.

It is well-known that South Africa has one of the highest start-up failure rates in the world. What’s not talked about often enough, however, is the reason why many South African start-ups fail within the first three years.

The answer usually lies in financial management. With proper planning, discipline and keeping a sharp eye on the balance sheet, businesses can make the small changes needed to make a lasting impact in the long run.

Research by the University of the Western Cape found that the top reason why local new businesses fail is because they run out of cash. Similarly, the Business Partners Limited SME Confidence Index has found consistently, year-on-year, that cash flow is the biggest challenge that entrepreneurs face.

These challenges become even more pronounced when business owners lack any form of financial management training or avoid looking at their business’ financial standing because they feel overwhelmed or intimidated by the task.

Experience is of course beneficial. However, the good news is that any entrepreneur, regardless of their educational background, can implement simple money management processes and improve their chances of success.

One of the most basic best practices in small business financial management is saving. If you, as an entrepreneur, can implement effective measures to save money from the very outset of your business journey, you can set a course for smooth sailing as your venture evolves and matures.

With 2024 now here, it is a good time to set a few tangible and measurable New Year’s resolutions. Here are four savings hacks you can implement in your small business during the first two years of business:

 1.  Budget smart – and stick to it

The most fundamental component of any proper financial plan is a budget. Before you start a business, your budget should include a forecast on all potential revenue streams for the first 12 months. As a business owner you may consider consulting a business analyst or business development specialist for assistance with ensuring that these forecasts are as accurate as possible.

Next, expenses need to be accounted for. This should include fixed assets, such as insurance, debt repayment, employee salaries and property taxes, as well as variable expenses such as raw materials and utility costs.

A great budget tip is to factor in some of the hidden costs that your small business may incur in the first year. These could include upfront fees for software packages, subscription costs, permits and licenses and office supplies. While some of these costs may seem marginal at face value, they can add up fast and need to be included in the budget.

2.  Use free tools and software

One of the best ways to manage cashflow effectively is to keep costs as low as possible. And while it may be tempting to splurge on non-essentials, employee rewards and client gifts, especially after receiving a business loan or alternative form of funding, the key is to be prudent from the get-go.

Instead of paying for expensive automation tools and software to manage aspects of the business such as accounting, social media posting, staff scheduling and website design packages, consider as many free options as possible.

Fortunately, there are a range of digital tools that offer a free option or a free trial for the first few months of business so you can get an idea of which tools you cannot afford not to have and which are nice-to-haves.

Remember, as your business expands and grows, its needs will change. Sometimes, it’s necessary to make a large capital investment in a tool that will propel a business into its next growth phase, but the first year is not the time to part with much-needed cash.

3. Invest time in networking

Many successful entrepreneurs attest to the power of having access to a large business network or support group. As a fledgling entrepreneur, sometimes the best moves that can be made are a matter of being at the right place, at the right time and talking to the right person.

For this reason, the first year of business should be all about strategic networking and building connections that may become stepping-stones later on.

Building a network doesn’t have to be a cost-intensive task. There are currently many sector-specific business networks that can be accessed via social media channels such as Facebook and LinkedIn.

In the first year, building a network will require more of an investment of time than actual money. As time progresses, the network built during the business’ early lifespan will become a pool of clients, advisers, suppliers and contacts that have the connections and influence needed to open doors of opportunity.

Proper planning prevents poor performance

One of the many lessons that stood out for me in the course of financing small and medium enterprises is that those who planned and prepared well, persevered through adversities but those who did not plan, disappeared.

If you do not plan, you run the risk of missing opportunities and risks that lie ahead. The key is to draft a formal plan for the year, follow it and review it on a monthly basis.