Financial red flags every business owner should know of
South Africa has one of the world’s highest small business failure rates. Research from the University of the Western Cape shows 70% to 80% of SMMEs collapse within five years. They build quietly while owners watch revenue and assume all is well.
Janus Joubert Image
Financial red flags every business owner should know of
Advertisement
The Small Business Growth Index (SGBI), a survey by Absa, SACCI and the Bureau of Market Research at Unisa, found 55.3% of SMEs could survive only 12 months under current cost pressures. A 2025 survey found 56% of SME owners struggle with working capital.
“A business can look healthy because sales are coming in,” says Janus Joubert, Managing Director of JBS Advisory and Accounting. “But revenue is not cash. I have seen businesses with strong order books and empty bank accounts.” Joubert identifies five red flags owners overlook.
- First, declining cash flow despite stable or growing revenue. Rising sales can tie up cash in inventory, staff and infrastructure before customers pay.
- Second, shrinking margins. The SBGI found more than 66% of firms reported sharp cost increases, led by transport and fuel, utilities and raw materials.
- Third, mounting debt. Vantage Advisory found 49% of SMEs are burdened by debt beyond their repayment ability. When debt funds daily operations rather than growth, trouble is close.
- Fourth, unpaid invoices. Business Partners reported that at the end of Q2 2025, 95,399 invoices older than 30 days, worth R12.4 billion, remained unpaid.
- Fifth, rising expenses outpacing revenue. The SBGI found nearly one in four businesses reduced headcount, while only one in 11 expanded staff.
How can an owner tell a temporary cash flow problem from a deeper one?
“A temporary problem has a clear cause and timeline,” Joubert says. “A large customer pays late, a seasonal dip hits, equipment breaks. A deeper problem is when the same issue keeps appearing, or you cannot explain why the money is not there despite sales.”
He warns against paying suppliers in 30 days while customers pay in 90.
Advertisement
“You are financing your customers’ businesses with your own cash.” Xero research found 91% of SMEs had invoices paid late, with overdue invoices paid on average 18 days after terms. Private sector payment cycles of 90 to 120 days are standard, and some SMEs face cash cycles beyond 150 days.
Joubert recommends reviewing four monthly numbers: cash in the bank, accounts receivable ageing, gross margin, and debtor and creditor payment terms. Stats SA found 57% of microenterprises lack formal accounting systems. “If you run a business on a spreadsheet only you understand, you are flying blind,” he says.
Most owners call an accountant too late. “By then, options are limited. The businesses that survive bring in a professional when things are going well, to build controls, forecast properly and prepare for growth.” He adds that 62% of SMEs see access to funding as a major barrier, and SMEs receive only 13% of total credit versus 51% for corporates. “If your records are a mess, no funder takes you seriously. Fundamentals are credibility.”
Trust Filing Season 2026 adds urgency. SARS opened filing on 19 September 2026, closing 22 January 2027. Trustees remain legally liable. “SARS is placing much greater emphasis on trustee information,” Joubert says. IT3(t) data now pre-populates beneficiary schedules, and cross-referencing is stricter. Automatic penalties for non-compliant trusts began on 4 May 2026. “There is nowhere to hide. Verify registration, details and records, then submit early.”
“Financial problems do not announce themselves. They whisper. Review your numbers, understand your cash cycle, and get advice before you need it. That is how you build a business that lasts, concludes Joubert.
Was this useful?0 reactions
