Six Common Cashflow Risks SME & Startup Owners should be Wary of

Keeping a healthy cash flow is essential for SME and startup owners who aim to make a profit out of their businesses in Dubai. Whether you are starting a new business or running one for some years, you may face the risk of cash flow that can eat into your company account. However, every problem comes with a solution. Working with the best accounting firms in Dubai can help you avoid many of the cash flow problems that stifle your business.

Cash flow issues are the major contributor to the failure of most SMEs in Dubai. A good cash flow keeps a business afloat and beware that poor cash flow can sink it. This means you must keep an eye on your cash flow position regularly and implement measures to correct to avoid any problems that may emerge. Here’s a list of five cash flow risks business owners should be wary of:

1. Underestimating Startup Costs

When you are starting a business, ensure that your budget presents realistic estimates. Unrealistic estimates coupled with a lack of cash reserve means you are starting on the wrong foot. Your budget should not underestimate the costs and should leave room for average. There is a no bigger disaster than Running out of money even before you can start the business. Take advice from the best accountants in Dubai to help you make a robust budget.

2. Going Solo to Manage Accounting Needs

Small business owners can either appoint an in-house accounting professional or outsource to the best accounting firms in Dubai to oversee the cash issues. There is a third approach that is unprofessional and risk-prone: the DIY (Do it Yourself) approach. Motivated by the penchant for saving some quick bucks, SME owners take the DIY route for accounting and bookkeeping.

First of all, this approach will cost you more than you imagine. The risk of overlooking important financial details is high when you perform accounting alone. Furthermore, you don’t have sufficient experience to drill down into the financial statements and see what may come up in the future. What you need is clear insights into your expenses and income that will help you optimise the business practices. If reduction costs are what you are aiming for, outsource to the top accounting & bookkeeping firms in Dubai instead of building an in-house accounting team.

3. Overlooking Accounts Receivables

Most small business owners have a gap in their accounts receivable process. If you have unpaid invoices for current sales, it could greatly inflate your numbers. Collecting receivables at a slower pace can hinder growth and would prevent you from having the money you need to run your business ahead. Furthermore, you won’t be able to pay books on time, if cash flow problems arise from slow receivables collection. To counter this, you must implement a strategy in place to follow up on outstanding invoices. Also, extend credit to those customers with a track record of making prompt payments.

4. Lower Profit Margins

Pricing is an art but, to make it robust, you need to know the numbers. Profit margin is one of the most vital metrics when you analyse the prices. Your profit margin lets you understand how much money your company makes from the money it earns. For instance, a lower profit margin means either your costs are too high, or your price is too low or both.

Lack of a strong and sustainable profit margin means you have to battle cash flow issues forever. Before any major issue pops up, you must review your profit margin and track it regularly. Doing this will give you an insight into your pricing and cost details which will enable you to see whether something needs to change to better your company’s cash flow.

5. Overlooking High Overhead Costs

Small businesses that experience high overhead costs will be on the receiving edge of the cash flow problems. Costs such as high rental costs, expensive car leases and travel can drain your company’s profits too fast. You are waging an uphill battle when your overhead costs are high. If overhead costs are overlooked, you will be forced to sell more just to cover your overhead costs and break even. With an accountant’s help, try to reduce the overhead costs. It will make a long-term difference to the profitability of your business and its cash flow.

6. Lack of Diversified Customer Base

Some businesses depend on one or a select few big customers for revenue generation. Big customers may be a good source of revenue generation. However, it will be disastrous if your big customer shut shop one day. You will fall into a debt trap and eventual liquidation. Try to diversify your customer base to avoid over-dependence on a single client. You can have a mix of a large number is SMEs and a few big companies as clients. In this way, you can manage even if one or two clients close down operations unexpectedly.

Avail of the Best Accounting & Bookkeeping Services in Dubai

Most small business owners encounter cash flow problems when they lack an effective accounting process in place. At all times, you should have a firm grip over your company’s current cash position, as well as upcoming expenses that are to be paid. You will encounter bigger cash flow troubles by just going with the flow and hoping that the money will come at the right time. The most effective way to keep cash flow issues at bay is availing the services of the best accounting firms in Dubai such as Jitendra Chartered Accountants (JCA).

At JCA, our goal is to reduce your stress by creating a financial process that helps your business succeed. Our team is highly qualified and has more than 20 years of experience serving in the UAE. You can explore our expertise and insights to find the right solutions that will support your financial needs. JCA resolves your business issues by providing services such as accounting & bookkeeping, VAT Return filing, annual audits, and Anti-money Laundering (AML) compliance services. Catapult your business to new heights on the back of JCA’s accounting & bookkeeping services in Dubai, UAE.