The other day a weekly newspaper carried a story of one of the nine provinces in South Africa that spent R90 million expenditure on a ceremony for a political leader.
All of this R90 million was from public funds. What exactly are public funds? These are the payments that ordinary individuals make to the local, provincial and national government in the hopes that there will be better services in their neighbourhoods, improved community facilities such as community centres, swimming pools and other recreational sports fields, parks and protecting small parts of nature, roads, highways, hospitals, clinics, postal services and even refuse collection.
Small business owners are accountable for the money they spend, unlike politicians. Every day of their business lives, small business people must ensure that they bring in revenues, collect payments that are due and pay their suppliers down to the last cent. In a small business every cent is accounted for including petty cash and amounts spent on small consumables such as photocopies, stamps and tools.
For a moment, imagine that you are about to start a new business. Where will you get the money to invest in your start-up? Will it come from your hard-earned savings or will you loan the money from private investors or banks?
Many people who would like to start something of their own, something from scratch or invest in a second-hand business or franchise will tell you that they don’t have any capital. If you look at research that goes into the ranking of small business owner challenges or problems, you’ll find that lack of access to financial capital is one of the major stumbling blocks.
How do you accumulate capital and sufficient qualities to invest in a small venture or enterprise? I don’t know of any magical way that you can accumulate money for funding your business such as working capital or capital expenditure required to purchase capital goods and assets such as equipment, vehicles and premises unless you begin to set aside a small amount of money each month in a kitty or fund for your business. The only magic ingredient is your own self-discipline and motivation to save each month in the hopes that you may eventually accumulate sufficient funds to be able to at least put the initial investment into your venture.
These days funding comes with so many strings attached that you’re going to be very lucky indeed if you obtain funding outside of straight commercial loans. You need that initial investment you have saved because you’re hardly likely to obtain funding from a bank if you’ve got no matching finance at all. Remember too that lenders want to protect their investment and require surety.
Lenders want security which would include session over investment policies that have cash value, fixed deposits or call accounts, assets such as plant, equipment and property, your own personal assets such as your residential premises and life assurance and endowment policies that have cash value. Signing over your personal assets as surety for your business means that for a relatively small amount of loan capital, you will put at risk your assets that you have accumulated over a lifetime. The only general advice I can give here is that before you sign any surety, you need to check with a professional particularly a lawyer or a business adviser who has experience in the field.
It’s important to work out clearly the following requirements of funding well in advance of you applying for finance such as how much money you require, what you going to use it for, how often it is going to be needed, what it will cost you and when you need to repay the money.
You also need to ensure that your funding needs are matched with the right type of funding. Working capital, for instance would be finance using short-term debt of up to 3 years, capital expenditure items such as vehicles, plant and office equipment would be funded using medium-term debt from 3 to 5 years and property would be financed using long-term date such as a 10 or 20 year bond.
Unlike politicians who don’t have the same accountability for spending public funds except maybe being unseated after every five years with a general election, business people when taking out a loan of any size from a money-lending institutional private investors will be accountable for every single cent, down to the very last cent. Without such accountability, private investment in new products, services or ventures as well as existing businesses which need to scale up, would not be possible.