Financial Issues SMEs Have and How to Fix Them Final (UAE)

Figures indicate that 50% of all SMEs fail within the first 5 years of operation.

Running a business is not easy, and business owners face a lot of unexpected challenges – many of them are financial in nature. However, with proper reporting and visibility, many of those challenges can be addressed, and the ensuing problems prevented.

The biggest financial issues SMEs face

1. Poor cash flow management
2. Poor job costing
3. Faulty reporting and Late statements

POOR CASH FLOW MANAGEMENT

Even profitable businesses can fail due to inadequate cash flow management. The stream of revenue coming in and going out needs to be appropriately tracked to gain insight into profitability vs. cash (which are very different things). Most traditional financial statements don’t help you improve cash flow. They are designed for historical record-keeping, not managing a business.

Real-time and forward-looking reporting (A/R; A/P; Projected cash flows), in addition to better management and automation of the collection process, improve cash flow from Day 1. Timely access to real and actionable data, along with continuous benchmarking (against business targets or industry figures) are essential for the proper management of your business.

POOR COSTING

Whether you are dealing with goods or services, If you don’t know the real costs to every item, you run a higher risk of underpricing, and that’s the leading cause of reduced profitability. 

Proper accounting for material, labor, and the distribution of overheads is key to understanding an entity’s real costs, which ultimately helps in guiding its pricing strategy.

FAULTY REPORTING & LATE STATEMENTS

Decisions need to be backed by data. Every moment you’re unaware of your finances is one more moment you’re not making the right decisions and therefore risking business failure. 

Having real-time and relevant management reporting is invaluable in making proper spending and operational decisions. And you need to trust the accuracy of the reports and numbers. Business is fast-paced, and the key to success is possessing the right data at the right time to make the right decisions.

CONCLUSION

You reduce your financial risks by taking steps to improve visibility into your numbers and finances. Real-time and forward-looking management reporting, improved collections, and continuous benchmarking can all help to improve your profitability and cash flow. After all, and as the saying goes, you cannot manage what you cannot measure.