Have you ever planned an overseas holiday and as you start planning you realise you need a new suitcase and have to apply for a Visa, for which you need your passport – that you just now realised has already expired? If this is not you, you probably have a friend to whom this has happened? You now know that you can still go away but not when you wanted to and only after you’ve dealt with all the admin you’ve been putting off for so long. We see the same happening with businesses looking to apply for funding. 

As a successful Visa application precedes an overseas holiday, your Financials precede successful funding applications. We have realised that Business Owners (both small and big, turning over hundreds of millions per annum) don’t know their financials and business data in a way that is accessible for financial institutions to lend against. To put this into perspective: when businesses apply for funding to the IDC, the status is that only 4% go through to the due diligence process.

Some of the reasons why only such a small amount progress throughout the process is that:

  1. Businesses don’t have their financials in order, 
  2. trial balances, management accounts and financial statements don’t speak to each other, 
  3. the actual day-to-day operations and happenings don’t speak to the financial records of the business, and
  4. the business does not have business data that can be used to develop a proper financial model required for their funding submission. 

We need to emphasise the importance of understanding that compliance is a cost and a burden only until you need it. Businesses cannot afford to let things slip by and get to it only when audit season arrives leaving room for omissions in the interest of meeting a deadline. When you do that, you are setting yourself up to miss opportunities throughout the year. Over the last five years the DTIC, IDC and NEF through their respective funding initiatives, have invested R32 billion in about 800 black industrialist businesses and entrepreneurs. These investments were in a range of production sectors such as manufacturing, the green economy, and plastic products; with plans to invest in new industries which can build local industrial capacity by up to R200 billion annually by the end of this financial period. 

Compliance and understanding financials together with good record keeping is painful for entrepreneurs and most business leaders because it does not come to them naturally. Most entrepreneurs and business leaders have a default setting to just get things done (operationally). Their default setting is to get out there acquiring markets and producing products and closing deals. They also have multiple requirements from suppliers, customers and employees that take priority daily, after which they still have families and a life, so we understand that compliance should wait – but it cannot.

Again, let’s highlight the importance of compliance in record keeping and not compliance for compliance’s sake. Ticking boxes are easy, but this is more about being pedantic with the quality of data you prepare. Business owners and leaders must understand the financials they receive so that they can comfortably express it in conversation and use it as a measure to convince dealmakers to give them the funding they require. Here is how:

  1. Increase the number of times you receive financial records to review.
  2. Review them! Don’t just let them lie on your table.
  3. Do double-checks and cross-checks to see if the sales numbers, inventory value, asset value, etc. looks correct and makes “sense”.
  4. Continuously ensure that the amounts owed to shareholders or financial institutions are correct and reflect accordingly on the Balance Sheet.
  5. Question the line items on your Balance Sheet and Income Statement and make sure you understand what lies behind each figure. 

Business owners that take the time to cross the t’s and dot the i’s like that are critical. It is an important skill every business owner needs. It is extremely painful to get to a day where the business is in a phase to grow but don’t qualify for funding because they don’t comply. Ensure that you can effortlessly apply for funding when the time comes by having your financials in order all year round – and understanding it in order to present it purposefully. 

Proper financials precede funding. Make sure you dot your i’s and cross your t’s so that you too can be a part of the 4%. Once you are in the room you stand a better chance than the guys outside.