Challenges & Risks facing Small & Medium Size Enterprises (SMEs)

Challenges faced by businesses at any stage of their life cycle  are numerous, these challenges will eventually undermine their competitiveness in the market place and their ability to sustain and survive. Below are some real life and practical examples:

  • Difficulties in preparing cash flow projection. Such projections are necessary to identify when the business is in need for cash,avoid raising too much money too soon and to develop synch between inflows and outflows, this will help companies to meet their obligations, expansion, ability to introduce new product and services and avoid running through insolvency, that could potentially lead in shutting down the business.
  • Financial Risks. These risks mainly resulting from excessive owner’s withdrawals in the form of dividends, over trading lead to increase in sales and current assets while sacrificing gross profit margins, and finally over financing that result in idle cash and high opportunity costs.
  • Nonexistence of historical financial and non-financial data. This data helps company in decision making and it precludes all attempts to approach financing institution to finance their company, and miss the opportunity to grow the business and capture deserved market share.
  • Poor Planning. Scarcity of reliable costing, reporting and accounting systems, absence of flexible budget preparations with respective forecasting, lack of understanding the difference between generated cash and profits.
  • Capital Structure mismatch. Mismatching between accounts payable with accounts receivable terms, and imbalance short term with long term assets and liabilities.