Does cash flow stand in the way of African expansion for SMEs?

Written by Kevin Vlietman • Online since 5.09.2017 • Filed under Finance • From Issue 6 - September 2017 - February 2018 page(s) 38-39
Does cash flow stand in the way of African expansion for SMEs?

SME owners, just like any other big business owners, constantly consider ways in which to expand their business reach and compliment their local growth. It is in this phase that thoughts of expanding into Africa might seem far too big a reach for small businesses. But it shouldn’t…

Africa is well geared to support the expansion of SMEs on the continent. If we consider Nigeria’s SME sector – which contributes 100% of the total manufacturing output and 70% of industrial employment – there is a strong business case for growth into Africa. Therefore, there is a compelling argument to be made that no matter what the size of the business – if done correctly and by taking into consideration Africa’s complexities – growth in Africa can be a strong reality for the SME sector.

Proceed with caution

However, as exciting as expanding business borders may be to owners, it can be a daunting experience and comes with risk. The decision to expand should always be taken with precaution. Before taking the plunge, here are five things you may want to consider or research before the big move:

• Firstly, decide which country you want to expand into, bearing in mind that not all African business markets are the same. Ensuring that your service offerings are aligned to the demand in a particular country is key to your planned outreach.

• Another big challenge is how to establish a presence in the market – the right way. Often, the key is finding the right partner to introduce you to the right industry players and show you ‘the ropes’. Networking and acquainting yourself with other like-minded business owners/partners is therefore essential – you never know what can come out of the relationships you build.

• Pay attention to the regulations and tax systems of the country you wish to expand into. Some countries have specific capital requirements, which means that a certain amount of money is needed to invest in registering the business before trading begins.

• Language barriers – it may seem like a small thing, but if you are expanding to a country where English is not one of the primary languages, it can be very challenging to network or trade with local businesses.

• Expanding a business can be costly and time consuming. In some instances, depending on the nature of the business, you might be required to relocate to the specific country for a period of time, depending on your business needs, to set up and take care of start-up logistics and requirements.

Taking the plunge

For any small business, growth and expansion can be risky. However, if you have done your research and the numbers add up, don’t be afraid to take the plunge – but managed the risk by ensuring that you have taken care of all that is required beforehand.

However, as you consider your options, remember that one of the most important considerations of any expansion plan is the capital requirement to support the move. Effective working capital management forms the cornerstone to any business – whether South African, or expanding into Africa – and it is important that you make sure your house is in order and that you have a solution in place for the effective and consistent management of cash flow to avoid payment obstacles. This is even more important in Africa – where often you are paying/being paid in foreign currencies.

The secret is being able to raise sufficient working capital and ensure strong cash flow within your business, always. For instance, take a business owner who has been thinking about expanding into Africa but doesn’t have enough capital to fund it. Without a proper cash flow strategy or the extra cash to fall back on, the prospect of expanding is unlikely and negates the opportunity to grow and expand. However, there are options available to SMEs specifically that may not have this critical component in place. So, what are the funding/financing solutions that are available to SME organisations examining growth into African?

Debtor financing and invoice discounting

Invoice discounting, or debtor factoring is one of the easiest ways to avoid having to wait 60 or 90 days to get paid by your debtors. By converting existing invoices into instant cash, through the payment of a small monthly instalment, an invoice discounting organisation will manage your invoices and refund you 75% of the amount owed to you immediately. This gives you access to unlimited cash flow while funding future orders, all while managing your cash flow.

Trade finance and property-backed lending

Property-backed lending is a business loan that you take out against your personal/business assets/collateral. This option allows you to borrow the money you need against your residential property. In other words, if you can’t get finance to expand your business, then asset-backed lending can provide that extra cash. However, remember that the amounts borrowed must be repaid in an equal instalment over a fixed period. Alternatively, you can apply for an overdraft facility, which allows you to pay the interest portion of monies borrowed, monthly. We all understand that business expansion and growth is centred in strong cash flow and working capital management. Therefore, financial considerations should be the first point of order before moving into Africa. While it’s not difficult to sort out your cash flow, it is challenging to find the right partner to help you get on track. There is a smarter way to go about your cash flow solutions to ensure your business survives the leaner months, and to provide for exciting opportunities. However, pick your growth partner wisely.

Kevin Vlietman, commercial executive at Transaction Capital Solutions is energised and passionate about innovation, commercial credit risk and the SME market in South Africa.

Transaction Capital Business Solutions provides cash when you need it most. You’ll need to qualify and meet the company’s criteria and run a good business, but when traditional lines of funding and overdraft facilities are not an option, we are. As an established company providing funding to a variety of businesses throughout South Africa, we are known for working with our clients to meet their very specific and unique needs.
Transaction Capital Business Solutions works with mostly smallto medium-sized businesses that are reaching for the next phase of growth and require innovative, non-traditional means of funds.
We have excellent market share in the manufacturing, printing, packaging, engineering and road transport industries, and are very proud of what our clients have accomplished. For more information, visit

Issue 6 - September 2017 - February 2018

Issue 6 - September 2017 - February 2018

This article was featured on page 38-39 of SABI Magazine Issue 6 - September 2017 - February 2018 .

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