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Cash flow: The true indicator of the health of SMEs

Only 25% of SMEs manage to cross the two-year barrier and one of the main causes is due to deficiencies in the management of their cash flows.

This article was translated from our Spanish edition using AI technologies. Errors may exist due to this process. Opinions expressed by Entrepreneur contributors are their own.

If there is a pain that the vast majority of Small and Medium Enterprises ( SMEs ) have, it is the administrative part, especially in managing their money inflows and outflows. Any businessman could compare this to a roller coaster, securing the entry date is a complex process, obtaining the money is heavy and difficult, but it is spent at the same speed as a deadly descent. This drop can be so dangerous that, according to INEGI data, only 25% of SMEs manage to cross the two-year barrier and one of the main causes is due to deficiencies in the management of their cash flows .

This handling of cash inflows and outflows is much more complicated than it might seem, and the impact of financial volatility that companies often have to deal with makes it easy to frustrate them. And the most serious thing about this situation is that cash flow is the true indicator of the health of their SMEs , something that they do not even have contemplated in their business plans.

But despite the years, cash flow never ceases to be a concern for entrepreneurs, so much so that the study of ' Work in Mexico, towards 2022' , carried out by the company Worky, detected that the lack of cash flow Caja represents a threat for 44% of companies, this being one of the most relevant. Additionally, it must be considered that these results occurred in a context in which the new restrictions on outsourcing, the implementation of NOM-035 and COVID-19 give companies great headaches.

This concern can be due to a million reasons ranging from lack of access to information and analysis in real time, disorder in your finances, late payments from clients, unforeseen events or simply lack of time and resources for proper administration. But one of the most common is that many companies do not have access to adequate funds to cover their current activities and do not have recurring financial services that really meet their needs. Moreover, the few accesses that SMEs have in some traditional financial institutions are not at all adapted to their true needs, these being patches of bullet wounds or they can even be their coup de grace.

This danger is due to the fact that the financial products offered by traditional institutions are generally designed for large companies and do not consider the times or conditions that SMEs need. An example of this could be in the measurement of risk rates. For traditional banks, small businesses pose risks so they offer very high interest rate loans that do not consider the reality or the advantages of supporting growing businesses. Another example would be factoring companies, which are usually on the side of large corporations and acquire invoices at a high cost for supplier companies.

Solving this pain that the vast majority of SMEs suffer must be one of the priorities so that their average life span increases and that facilitates the financial situation of the enterprises. Not for nothing do they say that SMEs are the engine of the economy and when we bet on them, we finally contribute to the generation of more and better jobs for the whole of society, especially after a blow of such magnitude as this pandemic was.