Why SMEs Run out of Cash and Fail

Iain Dunstan

IncentiaPay CEO and acting Bartercard CEO for Australia and New Zealand

Starting a business can be an exciting yet daunting prospect. With 20 percent of small businesses failing in the first year and 50 percent failing in the fifth year*, it’s no wonder people are mindful about their decision to go it alone.

Short-term cash flow problems can quickly sink a business, particularly SMEs, as they don’t have the deep pockets or backing that large enterprises do.

So, how does a business unexpectedly run out of cash?

Believe it or not, growing a business too quickly or achieving too much success early on can have a detrimental effect on your finances.

High demand for your product can overextend your ability to provide a service, impacting your business’ infrastructure, resulting in increased investment into resources, equipment, and tools to cope with the demand.

But what if your resources aren’t up to coping with the new demand, what’s the impact on customer satisfaction if you can’t meet their expectations? It could result in a double loss of increased expenditure and the loss of a client.

It’s common place in business that some customers will be late in paying their invoices. SMEs don’t have the time (and sometimes resources) to be chasing up debt, nor can they wait for collection agencies to do the work on their behalf.

Businesses need reliable revenue to cover operational costs and when you don’t get paid, it has a snowball effect on the operation of the business and engagement of staff.

How can an SME avoid cash fl ow problems?

Utilise the tools available to you. Having a business overdraft with flexible terms and competitive rates is a useful safety net. Depleted cash flow, whether it’s seasonal or late paying customers, is a concern for many businesses, but having the right resources in place can keep your business ticking over.

If you take out a business loan, make sure you have a plan for spending it, but more importantly the repayment of it, so you can continue to access capital in the future to strategically expand.

While an overdraft or bank loan is a useful safety net, ensure you have a back-up plan should something go wrong, and you suddenly find the line of credit you were reliant on being pulled. Don’t over commit!

Bartercard is a useful tool where members exchange products and services without the use of cash to attract new customers, boost cash flow and increase profits.

Check out Bartercard’s FREE eBook The 7 Habits of Highly Effective Small Business Owners (https://hubs.ly/H0cp_Vm0) which provides tips on how to deal with change and other business related matters.



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