Sound financial management key to SME viability

However, a number of constraints continue to limit growth in the SME sector.

Given the vital importance of the sector to the region, governments must take steps to support them.

Governments across the world have tried to improve the business environment for SMEs issuing government backed guarantees, encouraging banks to increase SME lending and issuing grants earmarked for SMEs. However, if there appears to be too much regulation, this can be off-putting for potential business start-ups and may also deter sole traders from employing more people. Nevertheless, reduced regulatory burdens can contribute to higher rates of business survival.

Many young people have the imagination, drive and energy to set up new businesses.

According to The World Bank within the past four years, 19 per cent of new businesses in Latin America and the Caribbean were founded by someone under the age of 35.

The Caribbean does have a serious unemployment issue, especially with its levels youth unemployment. Not only is youth unemployment high relative to global levels, it is also significantly higher than adult unemployment. Data from the Caribbean Development Bank indicates that the average youth unemployment rate for countries in the region with available data was nearly 25% in 2013, compared with the adult rate of only 8%. Gender differences were also significant, with unemployment among female youth exceeding 30% as opposed to 20% for males.

Job creation can be problematic for many governments when economic conditions are less favourable. But there has been a rising trend in many countries to promote entrepreneurship and small business development to combat the lack of quality jobs available in the region’s larger or multinational businesses Governments across the Caribbean must develop greater partnerships with accountants, bank managers and micro finance institutions to address the issue of how small businesses can have greater access to capital.

Business advisers and finance institutions have an important role to play in developing favourable lending environment for SME growth.

For example, greater awareness of alternative approaches to raising capital such as listing on the Stock Exchange should be promoted, including the relatively low listing requirements, which make it a credible finance option for a greater proportion of small firms. This option is also highly beneficial for enterprises seeking long-term funding for business growth.

Other sources of finance, such as leasing, should also be promoted by financial institutions and business advisers as this is one of the key sources of finance for European small businesses with the potential of playing an equally important role in small business lending in the Caribbean.

Sound financial management is key to improving the viability of small firms. This knowledge is called financial literacy, which allows an individual to make informed and effective decisions about their financial resources. Anyone in control of a small business will benefit from recruiting the services of a professional accountant who can best support them on how to get hold of sustainable finance, navigate through the government procurement process, and how to comply with regulations.

Regrettably, regulations and taxes are generally designed with the larger businesses in mind and then retro-fitted to the smaller ones. Every tax or regulation break and nuance later created to help small businesses only adds to the weight of regulation that small business owners have to understand and apply.

A good financial foundation is a must.

Any good accountant can be as flexible as a business needs them to be, and able to explain anything that is unclear to ensure the best decisions are made.

There are many attractions and great benefits to operating in the SME sector, however the reality is uncertainty is the new norm. Anyone who makes the brave decision to go in this sector will have to factor in turbulence as a very real possibility, and should develop strategies for a range of different economic market and of course, personal, scenarios.