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Debt can be good for SMEs if managed well

Debt can be good for SMEs if managed well

The word “debt” often has negative connotations for small businesses as it can be associated with financial trouble. However, it should be noted that it is often a vital resource that allows a business to grow.

This is according to Gerschwyne van Wyk, Country Manager at Business Partners Namibia, who said that although outward signs of a successful business are profitability, asset growth and happy employees, a crucial additional indicator signifying its financial health is the way in which it manages its debt.

“Well-managed debt starts with the fundamentals of good overall financial management. This is done by implementing a sound control environment along with necessary processes and checks such as controls over the access to bank accounts as well as regular reconciliation and review of bank statements. Another control measure is tight credit control to ensure that debtors pay on time,” he said.

“Other debt management measures include the implementation of appropriate budgeting and forecasting processes to ensure robust cash flow monitoring such as planned cash inflows from sales as well as anticipated cash outflows from expenses and overheads,” van Wyk added.

He noted that often the weakest part of any system is the people who run it, and the management of debt is no exception. “The personal credit record of a financial manager is often a good indicator of how well they can run the financial affairs of the company they manage. As such, it is important to keep this in mind when appointing a financial manager.”

When it comes to managing a company’s debts, a healthy business can use financial ratios, according to van Wyk.

“An example of this is the debt-to-asset ratio, which measures the size of a business’s debt in proportion to its assets and signals when debt levels become too high. A times-interest-earned ratio is another key measurement for debt management. This is calculated as earnings before interest and tax divided by the business’s interest expense, and measures the ability of a business to meet its interest obligations through its earnings,” he said.

Van Wyk pointed out that sound debt management is not only about the cold figures, but also about human relationships. “Maintaining a good relationship with your banker can make the difference between a loan facility being extended or called up. In order to do this, it is imperative to base the relationship on regular and transparent communication and building trust.”

He added that regularly reviewing the funding options in the market is part of good debt management. “When looking for finance for a small business, it is not enough just to look at the interest rates and the size of the instalment.”

Small business owners should also look out for the administration fees and service charges, and be aware of the penalties that often come with loan agreements such as for settling the debt early, falling behind, and, in some sophisticated facilities, for breaking loan covenants, he explains. “These loan covenants are parameters agreed to with the financier that your business must stick to, such as agreed level of bad debts below which your business will be expected to remain.”

He noted that often there is a good argument to be made in favour of consolidating a business’s various loans into one facility. Not only does it make the administration of the loan and the relationship with the financier simpler, but it can bring significant savings.

Van Wyk said that good debt management skills become even more important in times of business stress.

“The knee-jerk reaction by many entrepreneurs is to keep the problem hidden from the financiers making the crisis worse by having the facility called up. In contrast, open and upfront communication can turn a small business’s financier into an ally who may be willing to extend its facility or arrange a repayment moratorium,” concluded van Wyk.

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Following reverse listing, public can now acquire shareholding in Paratus Namibia

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20 February 2020, Windhoek, Namibia: Paratus Namibia Holdings (PNH) was founded as Nimbus Infrastructure Limited (“Nimbus”), Namibia’s first Capital Pool Company listed on the Namibian Stock Exchange (“NSX”).

Although targeting an initial capital raising of N$300 million, Nimbus nonetheless managed to secure funding to the value of N$98 million through its CPC listing. With a mandate to invest in ICT infrastructure in sub-Sahara Africa, it concluded management agreements with financial partner Cirrus and technology partner, Paratus Telecommunications (Pty) Ltd (“Paratus Namibia”).

Paratus Namibia Managing Director, Andrew Hall

Its first investment was placed in Paratus Namibia, a fully licensed communications operator in Namibia under regulation of the Communications Regulatory Authority of Namibia (CRAN). Nimbus has since been able to increase its capital asset base to close to N$500 million over the past two years.

In order to streamline further investment and to avoid duplicating potential ICT projects in the market between Nimbus and Paratus Namibia, it was decided to consolidate the operations.

Publishing various circulars to shareholders, Nimbus took up a 100% shareholding stake in Paratus Namibia in 2019 and proceeded to apply to have its name changed to Paratus Namibia Holdings with a consolidated board structure to ensure streamlined operations between the capital holdings and the operational arm of the business.

This transaction was approved by the Competitions Commission as well as CRAN, following all the relevant regulatory approvals as well as the necessary requirements in terms of corporate governance structures.

Paratus Namibia has evolved as a fully comprehensive communications operator in Namibia and operates as the head office of the Paratus Group in Africa. Paratus has established a pan-African footprint with operations in six African countries, being: Angola, Botswana, Mozambique, Namibia, South Africa and Zambia.

The group has achieved many successes over the years of which more recently includes the building of the Trans-Kalahari Fibre (TKF) project, which connects from the West Africa Cable System (WACS) eastward through Namibia to Botswana and onward to Johannesburg. The TKF also extends northward through Zambia to connect to Dar es Salaam in Tanzania, which made Paratus the first operator to connect the west and east coast of Africa under one Autonomous System Number (ASN).

This means that Paratus is now “exporting” internet capacity to landlocked countries such as Zambia, Botswana, the DRC with more countries to be targeted, and through its extensive African network, Paratus is well-positioned to expand the network even further into emerging ICT territories.

PNH as a fully-listed entity on the NSX, is therefore now the 100% shareholder of Paratus Namibia thereby becoming a public company. PNH is ready to invest in the future of the ICT environment in Namibia. The public is therefore invited and welcome to acquire shares in Paratus Namibia Holdings by speaking to a local stockbroker registered with the NSX. The future is bright, and the opportunities are endless.