Feb 1, 2023

Top 10 Financial Challenges for SMEs and How to Solve It

Finance is always the biggest challenge for SMEs. Even if you have a great business plan, you can not succeed if you do not have good financial management.

Here we have gathered the 10 most common financial challenges that SMEs face daily, and some tips on how to solve them.

1. Poor Cash Flow

Poor cash flow management can lead to business failure. Once your company’s cash outflows exceed its cash inflows, your company will be under cash flow pressure, which means you may not have enough cash to pay bills, rent, employee’s salaries and your business development. Therefore, it is important to maintain a healthy cash flow.

2. Lack of Visibility

Your brand may not be well-known to customers, especially when you are a start-up. However, a lack of visibility can slow your success and increase your financial burden. In order to raise your popularity without putting a great pressure on your finance, you may:

Create a Company Website - A website is a good platform to present your company, promote your products and services, and share your latest news. You may use website builders to build your website, which the cost will be much less than hiring a web developer/designer
Create Social Media Post - Social media provides an important platform for keeping in touch with your customers. Keep posting social media regularly will be definitely useful to engage your customers with your brand.

3. Unexpected Expenses

Unexpected expenses, like equipment repairs, supplier cost increase, payment delays and inventory damage, will create financial challenges for your company. You may not be able to predict the unexpected expenses, but you can plan for them. For example:

Including an emergency fund in your budget to deal with unexpected expenses.
Paying the unexpected expenses by business credit cards, which offer credit terms, low interest and rewards, that may help you solve your urgent financial needs. However, using a credit card only makes sense if you always make your payment in full before due and never go over your credit limit. Otherwise, it will become your next financial challenge.

4. Lack of Financial Planning

No matter how small your business is, financial planning is still essential. Financial planning is important as it helps guide your day-to-day business decision, and serves as a guide for achieving your short-term and long-term goals.

5. Overstocking

Poor inventory management can harm your business and put you into a financial crisis. Therefore, you should better forecast your inventory to avoid excess and obsolete stock.

6. Customer Not Pay On Time

Although you have sent invoices to your customers immediately, there is no guarantee that your customers will pay the invoices on time. Even a delayed payment is not a cost, it can still be impactful to your business. To have your invoices paid as quickly as possible, you may:

Remind your customers to pay their invoices by sending them a reminder
Make sure your invoices are correct and clear, and explain to your customers in detail whenever necessary

7. Lack of Capital

Lack of capital can result in insufficient funds to cover daily expenses, invest new business opportunities, or launch a new product and service, which may hinder the business growth. To increase your capital, you may consider to:

Apply for Government Funding Programs: There are plenty of funding programs available to support SMEs, and you may contact the related party to identify which funding program suits your needs.
Apply for Crowdfunding: You may start a crowdfunding campaign at a crowdfunding website, such as Kickstarter, Indiegogo, to raise funds.

8. Mixing Personal and Business Finance

SME owners may view the assets of the business as theirs, and mix the personal and business finance. It may be true, but it can cause a lot of problems on tax paying and audit arrangements, and lead to serious financial risks for you and your business. To provide your personal and business assets and avoid legal issues, you should set up a business bank account once you establish your business.

9. Lack of Technology

A comprehensive system that is integrated across the company enables the entire company to run efficiently and effectively. However, the investment on technology can be significant and burden the company finances. To enjoy the benefits of technology at a low cost, you may consider adopting subscription-based systems and softwares that the acquisition cost will be lower, and the implementation time will be shorter as well.

10. Not Paying Bill On Time

Late payment and missed payment can damage your finances, as the late payment fee and interest rate will gradually eat up your cash. Additionally, the late payment and missed payment may be recorded on your financial report, and harm your credit score, which may make your future financial activities more difficult.

We all know that financial management is essential to a company, but how to handle it in a systematic way? Implementing an All-In-One Financial Management System may be the answer.