Working capital mismanagement remains a top cause of SME failure in South Africa

WHILE many South African businesses report increasing sales, growing revenue may be masking a deeper and more dangerous financial issue: poor cash flow management.

- GARY SACKS

One of the real indicators of a business’s sustainability comes down to working capital discipline, not just top-line performance.

Recent data from a global Xero survey supports this trend:

The assumption that higher turnover equals financial health is flawed. In fact, we're seeing many businesses under severe pressure precisely because their operational cash flow can’t keep up with their growth.

The Revenue Trap

This common misconception that sales growth automatically leads to stronger financial performance, is what the industry terms the Revenue Trap. The "Revenue Trap" lures business owners away from critical working capital management.

The revenue trap is defined as the mistaken belief that rising sales will automatically translate into healthy cash flows, especially high growth SMEs. This singular focus on revenue growth, often flashy, fails to ensure that operations are generating cash and more importantly, profit.