-The simple 50/30/20 rule applies in home economics. It is a management method that distributes income into three categories: 50% for rent, mortgage, bills, transportation; 30% for dining out, shopping and entertainment; and the remaining 20% to recover or pay off debts. Is there an equivalent for SMEs? What would your advice be?
For the proper management of the SME, it is necessary not only to generate revenue in excess of costs or expenses, but also to collect the revenue in sufficient time periods to cover the payment required by the largest of the expenses. To do this, it is logically necessary that the selling prices of the goods or services provided cover the cost of their production and make a profit; This is the primary goal of any commercial or for-profit company; It is also logically necessary to adequately manage collections and revenues. Payments made monthly to pay suppliers, staff, suppliers, to prevent collection from customers at the appropriate time for the return of obligations or payment of financial costs. This short-term liquidity forecast will prevent the company from not having enough liquidity to pay operating expenses (suppliers, suppliers, workers, etc.) at any time, resulting in a disruption in the company’s usage cycle.
-It is talked about creating a cushion against unforeseen events and unexpected expenses. But how much does it need to be?
It is difficult to know how much cash support the company should have at a given date in case an expense arises and therefore an unplanned payment can be addressed. As noted earlier, through adequate short-term collection/payment planning, one can determine which liquid means a company faces an unplanned expense; A minimum “stock” of liquidity is required (liquidity that must be invested in the short term). to ensure profitability as much as possible in liquid financial products). To state a fact, it may be sufficient to always have 20% of the annual expenditure amount available in liquid form.
-Do you recommend relying on bank loans? What would be the most suitable interest rates?
Of course, every company needs external financing, it cannot always be financed with its own resources, and it is most normal for an SME to go to financial institutions, especially to finance fixed investments (machinery, transportation elements, patents, etc.). In principle, the company’s activity should be financed with the income generated from the activity, but at some point external financing may also be needed. Obviously, when providing financing with financial institutions, two main aspects must be taken into account: the debt repayment period (always in accordance with the recovery of the place where the funds were invested) and the cost. Currently and with the rise in interest rates, it is complicated to determine whether it is better to go for fixed or variable rates. In my opinion, as long as you can get a reasonable fixed rate right now, you avoid interest rate risk and do better financial planning for the company.
-How should we act in case of financial assets acquired by our company for investment purposes? (I mean having stocks, bonds, notes, etc. and still having them at the end of the year).
If you have financial assets for investment purposes, you need to know what their profitability is and how much risk you carry with them. Logically, if they are low-risk investments (for example, public debt), the profitability obtained will not be very high, but since these investments made by the company are “irrelevant”, it is always recommended not to take too much risk. Even if the profitability obtained from the activity is not high, it is recommended not to take too much risk. On the other hand, if these investments exist and the company has external financing at cost, it needs to evaluate whether it is more appropriate to liquidate these investments and amortize its debt. For example, it is not worth borrowing at 4 percent per year, on the other hand, it is better to own financial assets where the resulting profitability is below 4 percent, in these cases it is better to dispose of investments and amortize liabilities. It will be the best way to make the said profit profitable.