Complex Made Simple

SME Matters: How can my company become banking-ready?

Securing finance is a key issue for small and medium enterprises in the UAE. To get banks to provide them with the support they need, SMEs must first be banking-ready. Here is how:

SMEs sometimes prioritize short-term thinking, keeping their eye on immediate cash issues and growth milestones, to the detriment of longer-term strategies. This lack of foresight may later on impact their fundraising, at a time when they need it the most. There are seven priorities SMEs should focus on to avoid that haphazard mindset,

Small and medium enterprises (SMEs) are a fast-growing part of the economy, vibrant and quick to innovate.

However, the downside of this youthful energy is that these organizations tend to prioritize short-term thinking, keeping their eye on immediate cash issues and growth milestones, to the detriment of longer-term strategies.

This mindset shows in the haphazard way in which they often engage with banks, leading to delays in or even lack of funding at a time when they need it the most. Rather, SMEs should focus on these seven determinations:

1. Registration and licensing

For any organization to begin business operations – and even more so to engage with a bank – it has to be formally registered and incorporated as per legal requirements. Appropriate permissions and licenses must be secured from the local authorities.

2. Accounting and book-keeping

SMEs must formalize their unorganized transactional structure and strictly follow standard accounting practices. A strong account management and book-keeping system is crucial to any organization hoping to benefit from a bank’s financial services – not to mention the fact that it helps entrepreneurs better understand their results, improve efficiencies and plan more realistically.

3. Tax compliance

The introduction of the value-added tax (VAT) means that all commercial entities, including SMEs, must be registered with the Ministry of Finance and meet all of their fiscal obligations, both in terms of declaration and payment. It also means that they need to look at their suppliers for the goods and services they use to run their business; and incorporate early on taxation as part of their financial calculations and planning.

4. Auditing

Regular accounts and statements audits not only help an SME reinforce robust internal controls, but also allow banks to assess its health and financial credentials before extending loans and other types of funding. They demonstrate the organization’s consistency and transparency in financial reporting, building its brand value among customers and suppliers along the way. And finally, keeping a record of audited statements and reports is a sign of prudent financial and strategic management – a major criteria of banking readiness.

5. Business plan

Large or small, an organization needs to prepare a detailed, realistic and structured plan of action that will allow it to really fine-tune its vision and strategy, select the right financial model, put in place metrics and tools, track progress and adjust where and when needed. A proper business plan also enhances credibility and is a great asset to convince banks to lend funds.

6. Branding

Proper branding should be an integral part of an SME’s business plan rather than an afterthought. It allows the organization to inspire trust, state its culture and values in a unified manner, enhance its visibility and, ultimately, build a better, bigger business. A cohesive brand also shows the firm understand its market and consumers, and knows how to put an investment to work – a strong argument in the eye of investors and bankers alike, especially when making a first impression.

7. Digital readiness

In this digital age, any new company is expected to be fluent in new technologies and understand their benefits from the get-go. SMEs should ensure that their business model doesn’t rely on cash, physical interactions and manual work. This will not only ensure that their collaboration with banks – that have widely adopted e-banking and mobile banking services – is smooth and durable, but also that they are well positioned to grow efficiently and at a pace with the world around them.

Always tailored to your business: this article is powered by ADCB.