Financial management tips for SMEs during 2024 election

As Ghana approaches the 2024 elections, small and medium-sized companies (SMEs) across the country face the possibility of economic instability and uncertainty. 

Election cycles frequently bring spending variations, adjustments in consumer confidence, and regulatory changes that can have a direct impact on firms' financial environment. 

SMEs, who represent the backbone of Ghana's economy, must manage their funds properly during this time. In this article, we look at practical financial management suggestions for SMEs to assist them get through this period, stabilize cash flow, and prepare for any unforeseen economic swings that may occur.

Diversity revenue streams

SMEs that rely solely on one source of income may be susceptible during difficult times. 

Businesses can reduce the effects of a slump in a single industry or product line by diversifying their revenue streams. 

For example, a small IT firm that primarily offers digital marketing services to individuals may broaden its clientele to include private corporations, government non-governmental organizations, and educational institutions. 

Furthermore, SMEs may consider developing new products or services to fulfil diverse client needs.

Strengthen customer relationships 

Effective inventory management is critical during unpredictable seasons to avoid excess stock, which can stifle cash flow. SMEs can adopt just-in-time (JIT) inventory systems to reduce storage costs while keeping the proper amount of stock on hand. 

For example, an Accra-based retail clothing company could use data analytics to precisely anticipate demand, ordering just the things that are expected to sell during the election season. Inventory financing alternatives can also be studied, allowing businesses to retain funds that would otherwise be locked up in inventory. 

Maintaining loyal clients is especially important during periods of economic turmoil. By focusing on improving customer connections, SMEs may increase repeat purchases and stabilize revenues. 

Even in a difficult economic climate, offering discounts, loyalty points, or incentives might motivate customers to continue shopping. 

For example, a local cafe may start a loyalty program in which frequent customers receive points for each purchase, which can be redeemed for free coffee or meals. 

Furthermore, personalized customer outreach, such as delivering messages or promotions via WhatsApp or email, can keep customers interested and motivated to support the company.

Implement effective cash flow forecasting

Accurate cash flow forecasting is critical for managing election-related volatility. SMEs should generate precise cash flow estimates, identifying potential income shortages and budgeting accordingly. 

A construction company, for example, may analyze payment schedules from current contracts, identify which clients may postpone payments, and plan alternate funding sources. 

By making monthly or even weekly forecasts, SMEs can remain on top of their financial situation and make educated decisions, such as when to postpone a non-essential expense or when to use a line of credit. 

Build cash reserve

A cash reserve is vital for protecting SMEs from financial distress during periods of low income or delayed payments. 

Creating this reserve may entail setting away a tiny amount of monthly revenue. While it can be difficult for smaller businesses to build significant reserves, even a little amount can provide critical assistance when cash flow slows. 

For example, a small cleaning company may set aside a percentage of its monthly income to cover at least two months of operational expenditures, allowing it to weather periods of low client activity or delayed payments.

Increase digital payment options

Encouraging clients to use digital payment methods can speed up transactions and reduce dependency on cash flow from physical locations, which may experience less foot traffic during election-related disruptions.

SMEs might consider providing mobile money, bank transfers, and other electronic payment methods that enable clients to make timely payments. 

A beauty shop, for example, may employ mobile payment systems to encourage consumers to pay in advance or book treatments online, thereby increasing revenue and cash flow.

Conclusion

Election years can be difficult for SMEs in Ghana due to the economic and political uncertainty they bring. 

SMEs can reduce the effect of these difficulties and protect their operations by implementing realistic financial measures such as diversifying revenue, improving customer connections, optimizing cash flow management, and procuring short-term financing. 

Proactive preparation and agility are essential for not only getting through the election season, but also positioning for long-term growth. 

By keeping watchful and adaptable, SMEs may manage the 2024 election season with increased confidence and resilience, eventually emerging stronger and better equipped for future difficulties.

Dr Andrews Ayiku, Lecturer/SME Industry Coach, Coordinator (MBA Impact Entrepreneurship and Innovation)
University of Professional Studies Accra
ayiku.andrews@upsamail.edu.gh
IG: andy_ayiku
@AndrewsAyiku
F: Andyayiku