5 financial pitfalls SMEs must avoid to thrive

South Africa’s Money Smart Week 2025, running from 25–31 August, comes at a crucial time for small and medium enterprises (SMEs), many of which are walking a financial tightrope. For business owners already balancing rising costs, late payments, and economic uncertainty, a single unexpected shock can be the difference between keeping the doors open and closing them for good.

SMEs account for 91% of formal businesses, employ around 60% of the workforce, and contribute roughly 34% of gross domestic product (GDP). Yet, research shows many are not adequately prepared for financial setbacks - whether it’s a break-in, equipment failure, or losing a key client.

Financial preparedness goes beyond insurance. It’s about building resilience into your business and making sure you’ve planned for the risks you can’t predict. That could mean having an emergency fund, cross-training staff, or having the right insurance cover in place. The important thing is knowing where your vulnerabilities are and having a plan.

Five common pitfalls SMEs should avoid

Here are five frequent mistakes that cost SMEs thousands - and how to avoid them:

Believing “It won’t happen to me”

 Many owners delay taking precautions because they’ve gone years without a major problem. But financial shocks don’t come with a warning. Losing your delivery vehicle days before a big order, or facing a supplier default, can cripple operations overnight. When nothing has gone wrong for years, it’s easy to believe you’re immune - until the day it happens. And then the recovery costs far outweigh the preparation.

Overlooking key personnel

 Every business has at least one “indispensable” person, whether it’s the founder, a top sales lead, or the only technician who knows the machinery inside out. Losing that person to illness, disability, or death can derail the entire operation. Too often, SMEs only realise the danger when it’s too late. Losing a key person without a contingency plan is like losing your captain and hoping the rest of the team can coach themselves. Solutions can include key person insurance, but also succession planning, cross-training, and having outside consultants on call.

 Neglecting regular reviews

Businesses don’t stand still; however, many owners treat financial planning as a once-off exercise. A contract win that doubles your assets, or a quiet season that shrinks operations, should trigger an immediate review of your financial protections. From cash flow strategies to insurance cover, policies should evolve with your business. It’s the silent killer for SMEs - assuming what worked two years ago still works today.

Relying solely on personal resources

 Many entrepreneurs rely on their own savings or personal insurance policies to protect their businesses. But personal cover is rarely enough. A personal life policy won’t cover staff salaries, office rent, or supplier payments if the owner can’t work. Likewise, dipping into personal savings during a crisis can put household finances at risk. Tailored business strategies - including insurance, credit facilities, and reinvestment in critical assets - create a healthier safety net.

Chasing the cheapest premium or quick fix

 In tough times, it’s tempting to cut costs wherever possible. But choosing the cheapest insurance policy, ignoring exclusions, or overlooking gaps in cover often backfires during a claim. The same applies to cash flow or credit solutions. Sometimes you don’t pay less, you just pay later - and much more. A skilled advisor can help balance affordability with comprehensive protection.

Financial planning as a growth enabler

 Being prepared isn’t just about survival, but it can be a competitive edge. In tenders for state or corporate contracts, proof that your business is financially secure can make or break the deal. We’ve seen companies lose opportunities simply because they couldn’t show reliable risk management. Being financially prepared signals to clients, banks, and partners that your business can be trusted.

For Money Smart Week, a message to entrepreneurs is simple: don’t wait for disaster to strike before putting plans in place. Identify your risks - all of them - and decide how you’ll manage them. Whether that means setting aside cash reserves, building a stronger team, or working with an advisor to tailor your insurance and financial strategies, preparation is your strongest asset. When you know you can weather a storm, you sleep better at night. And a well-rested entrepreneur is far better equipped to grow a thriving business.

* Reyneke is the CEO of Multilink Financial Services.

PERSONAL FINANCE