In the year when COVID still continues to circulate and the world looks to recover from the pandemic-induced setbacks and financial issues, 2022 is expected to be a tumultuous year for small and medium businesses. Fortunately, with a bit of forethought and preparation, SMEs can avoid financial mistakes that may happen with poorly prepared competitors:
Here are the four financial mistakes that SMEs should avoid in 2022.
Lack of Diversification
The past two years have been distressing for SMEs due to the border closures, reduced air traffic, lockdowns, and shipping blocks, which constrained supplies of many imported and exported goods. More recently, staff absences have also caused several supply chain issues for the companies. Additionally, geopolitical tensions have impacted the overseas manufacturers and routes to market. Therefore, businesses need to start the New Year on a positive note by diversifying their operations. This means not only supply chains but also the revenue streams and customer markets. This is to ensure that the business continues bringing in revenue even if the supply chain goes broken, raw material gets delayed in transit, or sales in a particular product come to an end.
Poor Financial Planning
Cash flow is known as the king in a business. It is crucial for every business to know the numbers, have good recordkeeping, and devise possibilities for those leaner times. Also, you should remember not to overlook potential impacts from the following in 2022:
- Interest Rate: It is believed by many specialists that the reserve bank of may hike the interest rate sooner to curb rising inflation. Consider how that impacts your access to and cost of finance, credit cards etc. On the other side, rising rates may give you cause to increase interest charges on late payments.
- Pricing: Supply shortages are driving up costs for many goods. Analyze whether your own prices need to rise given these higher operating expenses.
Neglecting the Staff
While international borders look to be reopening sooner this year, that doesn’t guarantee a sudden invasion of foreign workers to fill domestic labour shortages. Therefore, staff retention will be more important this year. You need to consider, what the cost of losing them is? Find out from your staff what motivates them, such as flexible hours, more money, promotions or upskilling? Also, deliberate how you can supplement income with other perks, such as facilitating financial advice, short courses offering work and personal uses, or free consultations with other professionals.
Not Knowing Your Market
Many businesses have turned their operations due to the pandemic; however, some will sadly not recover. You should remember to consider these questions: Are there new customers now that the wheels are turning again? Will you need to seek out replacement customers? You need to survey your industry and local market to see what has changed and where things are headed. This will position you on your front foot instead of anxiously playing catch-up.