MUHIA: Financial discipline key to long-term success for SMEs

Daniel Muhia, Managing Partner at MGK Consulting./HANDOUT

In Kenya, a significant number of Small and Medium Enterprises (SMEs) fail, with estimates suggesting that close to 400,000 die annually. 

A large proportion of these businesses, around 46 per cent, do not survive their first year of operation. 

Failure to maintain proper records, understand tax obligations and file accurate returns, in addition to a challenging operating environment, are among the major challenges said to cause the collapse of many SMEs.

The Star spoke to Daniel Muhia, Managing Partner at MGK Consulting, on his 25-year journey in tax and finance, and how SMEs can remain resilient.

In a nutshell, tell us about your 25 years in tax and finance. What keeps you going?

My journey in finance and business advisory has been anchored on a simple goal: to offer honest, reliable business advisory and support to businesses trying to navigate an ever-changing environment.

Back in the late 2000s, many small and growing businesses were struggling to keep up with compliance while also trying to grow. We saw a clear gap and believed that with the right structure, systems, controls and values, real change was possible. 

 Have you ever felt like giving up? How did you overcome challenges?

Yes, there have been many difficult moments. Some of the most trying times have been during regulatory changes, when the business environment becomes unsettled and clients are unsure.

That kind of uncertainty creates a ripple effect that can affect performance, morale and clarity. But one of the more personal challenges has been when team members I had banked on—those I invested in, mentored and hoped would grow into leadership—suddenly leave. It is disorienting, sometimes discouraging. You question whether all the effort was worth it. 

What are some common mistakes you see entrepreneurs make with their finances and how can they avoid them?

One of the most common financial mistakes entrepreneurs make is failing to separate personal and business finances. This blurs the true financial picture, complicates tax compliance and often leads to avoidable cash flow issues. Getting into the habit of clear financial separation is a simple but powerful discipline. 

Another major issue is the lack of relevant internal controls. Many SMEs operate with informal systems—no approval processes, no checks on spending and limited accountability. This not only opens the door to misuse or fraud but also makes it difficult to generate reliable financial data for decision-making. There is also a tendency to delay investment in proper financial systems. 

Lastly, compliance is often seen as a cost rather than an asset. But when entrepreneurs understand tax allowances, deductions and structuring opportunities, they discover ways to legally reduce liabilities and reinvest more confidently. Financial discipline, controls and a proactive mindset are key to long-term success.

What is it like for an entrepreneur to find themselves in a tax or financial mess? How would you advise them to handle it, especially when the pressure is high and the options seem limited?

Many entrepreneurs go through setbacks. What matters is how you respond. I have faced setbacks when it comes to financial matters, like investment challenges, it is part of the learning curve. 

Finding yourself in a tax or financial mess as an entrepreneur can be stressful and isolating. It often feels like everything is piling up at once, missed deadlines, unexpected penalties and uncertainty about what to do next. But it is more common than people think, and it can be fixed.

The most important thing is not to ignore the issue. The longer you wait, the harder it becomes to manage. As soon as you notice something is wrong, whether it is unfiled taxes or a cash flow problem, face it directly. 

Take time to understand what went wrong and where the gaps are. Get support from someone who understands the system, whether that is an accountant, tax advisor, or peer. Trying to solve everything alone under pressure often leads to more mistakes. 

From experience, it takes honesty, consistency and a clear plan to get back on track. You may need to negotiate timelines, seek waivers or concessions, clean up your records, or adjust how money is being managed. It is not about fixing everything overnight but about taking steady, informed steps toward clarity and control.

What role does financial strategy play in helping businesses grow?

Financial strategy is the bridge between day-to-day survival and long-term growth. A business or organization may find itself focused on paying bills, meeting payroll, or handling emergencies. But without a clear financial strategy, it is easy to get stuck in that cycle.

True growth requires more than activity; it needs intentionality.

A sound financial strategy gives businesses the ability to allocate resources wisely, set priorities and make informed decisions based on data, not guesswork. It moves the business from short-term thinking to a long-term mindset.

Tools like cash flow forecasting, budgeting and scenario planning to look ahead can come in handy. These are not just accounting routines; they are decision-making frameworks.

They help businesses anticipate challenges, seize opportunities and measure the real impact of their choices. 

Financial strategy doesn’t mean becoming rigid or overly cautious. The business environment is ever-changing.

It is about creating structured flexibility, a system that allows you to adjust and grow with clarity. When businesses have a clear financial roadmap, they make smarter investing decisions, hiring decisions, negotiate better deals and can expand with confidence.

How do you help businesses stay compliant without losing sight of profitability?

Compliance and profitability don’t have to be at odds; they can work together. Simple tools like keeping a tax calendar and doing regular internal checks can help businesses stay on track and avoid last-minute stress or penalties.

 In the long term, a clean tax record builds credibility with investors, lenders, regulators and even potential partners. It is also important to understand what tax reliefs or exemptions your business might qualify for.

Many businesses miss out simply because they are not aware of what the law allows. Taking time to learn or ask about these options can save money and improve stability. The key is to stop seeing compliance as just ticking boxes. When done right, it becomes part of running a smarter, more resilient business.

 How can entrepreneurs better prepare for policy shifts or economic downturns?

Many times, policy shifts or economic downturns may be inevitable. My advice is to embed risk management in the day-to-day running of the organisation and keep evaluating and updating the same. No matter the size of the business, risk management is critical.

It can be a simple risk register highlighting your three to five key risks, their potential impact, the mitigating measures you are willing to put in place. Keep checking. Also, checking the underlying opportunities if the risk materialises. This can be factored in as a risk response. 

What should young business owners know about building a financially sustainable enterprise?

The foundation of financial sustainability is discipline. This means establishing systems, regardless of the size of your business, that encourage accountability, budgeting and real-time financial visibility.

Young entrepreneurs must avoid the mistake of postponing structure until growth happens. In reality, structure is what drives growth.

Even simple actions like weekly expense reconciliation or automating tax remittances build habits that safeguard against future disorder. In addition, financial literacy should be embraced as a core leadership skill. 

How can technology improve the way businesses manage their taxes and finances?

Technology is not just a support tool; it is a strategic asset in modern financial management. Today, software solutions enable real-time tracking of cash flow, expenses and tax liabilities, eliminating guesswork.

Integrated systems also help businesses stay compliant with minimal manual input, reducing errors and saving time. The best part is that these innovations allow SMEs to operate with the same level of oversight and sophistication as larger firms, democratising access to high-quality financial insights. 

If you could give your younger self one piece of advice, what would it be?

It is good for a man to bear the yoke while he is young. Embrace responsibility, discipline and preparation. Push yourself, be true to yourself.

Plan your time well and be intentional. Have a personal strategy. Enjoy every day and most of all, put your trust in God.

Surround yourself with people who sharpen you— those who challenge your thinking but share your convictions. And never stop learning. Invest in your mind, guard your heart and remain teachable. Care for people. Be present. Be patient. Great things take time to build.