Small and Medium enterprises are some of the most prone to failure in a challenging economy, especially in their earliest years. Cash flow guarantees, the danger of high fees and fines, diseconomies of scale and the lack of capital to keep a business afloat in recessions and downturns are all big risks in their own right.
Each can bleed a new business dry and only represent a small percentage of all the many risks entrepreneurs face. A well-circulated fact in the start-up world states that only about 4 in 10 businesses actually make it beyond the first three years of operation. It’s a big challenge, full of obstacles, but ultimately the potential upsides and freedom to chase success make managing these risks better than having never tried at all.
Legal Quandaries
Legal fees are serious business and even an accusation landing on a business owner’s doorstep is still not to be taken lightly. The two major risks to SMEs are customers and employees receiving injuries either on the job or on business premises.
If either of those things occurs, they are well within their rights to raise a claim through their insurers and seek compensation. Organising business insurance for your biggest risk points – identified via an insurer’s risk assessment – can help to cover you in unfortunate circumstances.
A successful claim can mean a business needing to front not only legal fees for themselves and the claimant but also contribute to the considerable compensation for personal injury claims that can stretch from immediate care to long-term recovery programs. While this is a good thing in helping injured parties recover, a business needs to be covered to be able to survive those costs if they come your way.
Fine and Fees
An offset of legal claims, but a business failing to uphold certain regulations and standards has every chance of receiving significant fines and punishments. Safety and security standards are some of the most common, GDPR and tax filings need to be covered via staff training from day one with a rigorous HR and practical education course to understand the risks is a good way to minimise the likelihood of accidents.
Many industries are regulated via watchdogs and inspectors, who will pay regular visits to check on specific standards. In the same way, you need to be insured, you should treat regulations as non-negotiable fixed costs to your business. The alternative can cripple a business trying to build up turnover.
Unlocking Cash Flow
Accounts receivable payments are the lifeblood of any business buying or selling with other businesses. If you’re selling directly to customers, there’s still a chance you’ll have invoices that are owed to you too. What’s known as debtor days – the average time it takes for a business to pay you back – is a good indicator of how healthy an SME’s cash flow is.
Two things you can look into are hiring an accountant, who can help you organise and chase late payments, or investing in software to automate and streamline the process. Maintaining low debtor days, regular payments and a healthy cash flow are the dirty work that underpins an SME’s survival early on, rather than just thinking about closing deals and the next big thing.
We’ve touched upon a few other points here, like the difficulties of growing a business at speed, and the increased costs which come with it. These sorts of things are problems that come with success, but the major points that really catch businesses out early on, as we’ve shown, are to do with getting the fundamentals right first.
Cover yourself, maintain your cash flow and meet all the regulations that are expected of you. This is the foundation from which you can beat the odds and go beyond those first, three years.
