An expert opinion on why businesses fail – part 3

PART II of this series talked about the importance of establishing and implementing a business model that is both functional and adaptable to socio-economic changes. He also covered the centrality of business development and asked, “What’s next? “

The third part refers to the findings of Business Partners Limited’s Small and Medium-Sized Enterprises (SMEs) Index for the second quarter of 2021 measuring the attitudes and confidence levels of South African SME owners.

The survey highlighted insufficient cash flow and lack of financing as major challenges for South African SMEs and often results in business failure.

The issue of finance is more complicated than many entrepreneurs realize. Let’s explore this problem in more detail:

1) The inability to maintain and maintain a healthy cash flow

The term “cash flow” refers to the cycle money goes through as it enters and leaves a business. For SMEs, this is often a decisive factor. Maintaining a healthy cash flow allows a business to react quickly when faced with unforeseen challenges.

As an example, consider the impact the recent wave of riots had on cash flow for SMEs across the country as some were dispossessed of their inventory and were unable to trade. It can be argued that a strong cash flow is also crucial for sustained growth, as it allows for greater flexibility. However, there are a few common mistakes small business owners make when it comes to cash flow, which are outlined below:

Overestimating Future Sales There is an adage in the investment community that rings true for SMEs: “Past performance is no guarantee of future performance. A sudden increase in sales volumes can cause business owners to become overly optimistic and spend too much of their available money to buy more inventory, market, or pay suppliers.

This is where a realistic forecast becomes essential.

When forecasting future sales, it is imperative that business owners consider all contributing factors and do not base potential gains solely on past performance as this could cause them problems.

There is a wide range of factors to consider, including market activity, competitor performance and rate of innovation, the country’s economic climate and changes in customer demand.

2) Lack of funding

As the SME Index reveals, 50 percent of SME owners consider access to finance for the growth and sustainability of their business to be of vital importance.

In the previous columns, we have mentioned how important it is for the public and private sectors to work together to create a socio-economic environment conducive to entrepreneurship, especially since small businesses are essential.

contributors to the country’s GDP. It is important for aspiring entrepreneurs and start-up owners in their early years to remember that funding for a business can come from a variety of sources, many of which are sometimes overlooked due to a lack of research.

Below is a list of some of the forms of financing currently available to South African business owners:

  • Commercial loans from banks and financial institutions
  • Commercial loans from independent companies such as Business Partners Limited
  • Venture capital investment and angel investors
  • Government grants
  • Crowdfunding
  • Business credit cards
  • Bootstrapping (or self-financing)

The most important first step for any business when considering financing is to develop a comprehensive business plan.

These plans should include a company’s mission statement, a description of its value proposition or unique selling point, and an outline of its product or service.

More relevant, a business plan should include high level growth plans detailing the ultimate vision for the business and how this will be made possible through investments of capital, resources, time and energy.

The more comprehensive a business plan, the easier it is to identify the most suitable financier for your business and the more possible it is to make accurate projections of what the business needs to thrive in its early years. crucial.

This article is the last in a three-part series that explains why small businesses fail and how to work around some of the most common problems.

Ben Bierman is Managing Director of Business Partners Limited.

* The opinions expressed here are not necessarily those of the IOL or the titles sites.

An expert opinion on why businesses fail – part 3

Source link An expert opinion on why businesses fail – part 3

Back to top button