Existential threats for small businesses

Dealing with Business Risks

The biggest threat to businesses is poor strategic management, often in the form of failing to stay abreast of changes in the industry and adapting business practices. Rapidly evolving technological advancement these days have meant that the business environment and business models (which at one point may been considered foolproof), are being disrupted and being made redundant sooner.


The threats to business can also be exacerbated by structural changes in the economy which are country specific (e.g., moving away from manufacturing towards a service-based economy). As small businesses typically sit on the cusp, best practices that ensure their long-term viability are imperative.


Other threats to small businesses include poor financial controls and management, excessive borrowings and/or high cash use, large amount of bad/uncollectable debts, over-reliance on a particular good, service or customer, management disputes, and increasing misconduct by officers. There are also of course, factors beyond the control of the business (e.g., extraordinary events like Covid-19) but these tend to be few and far between.


Larger corporates are largely able to mitigate these risks by ensuring that their boards are sufficiently constituted with individuals of diverse backgrounds and experiences. On the other hand, small businesses do not have the same resources that large businesses have.


Mitigating the risks

However, there is still a lot that small businesses can do. Technology is the great equaliser, allowing small businesses to still institute robust internal controls, policies, and procedures. With the advent of newer technologies, the costs of implementing such systems are no longer as prohibitive as they used to be. In fact, technology has not only made the costs of doing business cheaper but also quicker and more efficient. While there may be some short-term pain and inconvenience upon initial adoption, the benefits to the businesses are well worth the initial investments.


To stay on top of the trends, small business owners should also persevere to keep themselves abreast of key changes in the industry, their competitors, and the market mix. They should also critically analyse their business model and operations constantly and make incremental adjustments to ensure that they stay relevant to the needs of the market.


Technology is the great equaliser, allowing small businesses to still institute robust internal controls, policies, and procedures.


Costs of complacency

Problems to businesses often arise, not from a lack of attention to detail, but rather, from a lack of planning and/or senior management complacency contributing to poor decision making.


The above is a common entanglement that small businesses often get into. As the owner−operator often wears multiple hats in order to conserve funds and/or limit expenditure, as the business grows, he may find himself trying to juggle everything as their amount of work in each area grows concurrently. This often results in things getting overlooked. Ensuring that a business is sufficiently resourced for growth is as critical as achieving the growth itself.


The other common issue is becoming overly comfortable with existing ways of doing things. A les-e-faire approach of “we have always done it this way and it has worked for us” at some point can contribute to undesirable outcomes. When such instances occur, it is important to recognise the problem early and if necessary, seek professional help before the issues become endemic. This help may be in the form of a qualified restructuring professional or legal advice for management to understand all the options available as they try to save the business.


Most common mistakes

The most common mistake among SMB or SME owners is that they try to do everything on their own. This can be understandable from a cost perspective when the business is at its infancy. However, what a lot of business owners tend to do is to continue what they did initially, even after the business has become more established and is handling more work.


This usually means there is less time available to manage the business. However, these days there are ample tools available for a small business owner to assist him in managing the business. It is simply a case of adoption and making what may initially appear to be, uncomfortable adjustments.


The other common mistake is not staying on top of the company’s financial position and/or putting off management meetings. Management meetings are critical to making informed decisions about the direction of the company. The owners, who are typically the directors of the SME/SMB, will usually also have a limited appreciation of what constitutes their duties under the law, which would then have a bearing on their decision-making process.


The most common mistake among SMB or SME owners is that they try to do everything on their own.


Ensuring financial health – best practices

Monitoring and ensuring a company’s financial health is one of the golden rules of good business management. These include:

  • Ensuring adequate cash flow
  • Proper management of receivables and bad debts
  • Monitoring debt levels and liquidity
  • Maintaining proper records
  • Preparing budgets and forecasts
  • Holding monthly management meetings to assess performance and if it was in line with budgets and forecasts; if not, analysing why and taking the necessary steps to rectify the situation.
  • Taking action on the first sign of financial difficulties.


More often than not, leaving things until they are too late, can lead to a situation where the only option available is to place the business under some form of external administration, which in itself can be costly.


The information provided in this article is general in nature and is not intended as advice. We recommend business owners or individuals who may be facing financial difficulties, seek advice at earliest from a specialist firm like Solvent, in order that appropriate measures can be developed and implemented to deal with and, where possible, mitigate the risk.


No two situations tend to be alike. As a premier firm in small business restructuring and turnaround, Solvent has the experience, expertise, and knowledge to deal with even the most complex issues.


Solvent, as your go to one stop shop solutions provider, also works in conjunction with reputable specialist law firms, so that you do not have to worry about obtaining the right legal advice for your circumstances, saving you both time and money when you meet with us.


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