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Is Your Business Doomed to Fail?

A recent study by the University of the Western Cape revealed that South Africa’s start-up failure rate is notably higher than global averages, with 70-80% of small businesses not surviving past their first five years. In 2021, the primary cause of start-up failures was a lack of sufficient funds. Efficient cash flow management can serve as a catalyst for your business’s growth. Similarly, mismanagement could result in your entrepreneurial venture’s abrupt and premature end. Investing in professional accounting services and maintaining a steady cash flow is crucial for businesses to stay operational and remain excluded from this alarming statistic.

Understanding Cash Flow

In its simplest form, cash flow represents the net result of funds coming into your business and those going out. Intuitively straightforward, ensuring a steady cash flow is among the most formidable hurdles an entrepreneur can encounter. Remember, cash flow and profit are not synonymous. Your business could be showing profits on paper while grappling with a negative cash flow.

What Negatively Influences Cash Flow?

Inventory

Inventory is integral to your customer offering. However, it requires capital to replenish and maintain. Overspending on inventory or experiencing a sales dip can translate to cash tied up in higher levels of inventory on hand, leaving cash distressed to satisfy other obligations.

Delayed Payments

When customers delay their payments to you, your company’s cash flow is stalled, making it more difficult to meet your financial obligations. It is crucial to reflect on payment terms with clients and devise strategies that avoid late payments.

Initial Costs

Being asked for an upfront deposit for certain assets or services is common. However, new businesses with restricted funds can find themselves under considerable pressure due to these deposit requirements.

Exorbitant Expenses

Streamlining more considerable expenditures during the beginning phases of a start-up can liberate funds and prevent cash flow problems. These expenses include retaining full-time employees, paying for business spaces, or other expenses.

How To Avoid Failure

Cash Flow Statements

Regular cash flow statements provide valuable insights into the status of your company’s finances and help guide informed decision-making. These statements show how cash entered your business and how it was spent within a specific period. They typically include financial data about cash from your business’s operating, investing and financing activities and would be prepared each month by your accounting services provider.

Invoice Management

Proactively managing customer invoices to ensure on-time payment helps ensure a steady cash flow. Ensuring clients remain up to date with their payments can be achieved by managing quality customer relationships or incentivising through discounts and value add-ons for future purchases.

Financial Data

Having up to date business financials at hand is essential to cultivate an accurate overview of your business’s financial well-being. This is best achieved with professional assistance, as an experienced team will be able to share actionable insights and suggestions.

Asset Financing

Unexpected revenue may encourage business owners to splurge on bigger expenses to help grow their business. But, while debt is never good to incur, it is often better to use financing for buying assets and saving these cash reserves for unexpected expenses.

Supporting Your Business’s Success

MMS Group offers outsourced accounting services designed to help small businesses manage their financial operations effectively. We handle tasks such as bookkeeping, financial statement preparation, budgeting, and cash flow forecasting, allowing our clients to focus on their core operations to support their success. For accounting services that prioritise your business’s longevity, please contact our team.