Mexico has a great entrepreneurial spirit; However, 35% of the projects find as their main reason for failure, the lack of liquidity and working capital, as mentioned by the Association of Entrepreneurs of Mexico (Asem), this happens because they are not having an adequate administration, since 37% of companies lack financial planning.
The Asem study “Financial Management” highlights that 36% of SMEs do not know how to do financial planning30% have ever done it, but did not know how to take advantage of it and 17% do not have time to do it.
Ramón Martínez Juárez, a professor at the Escuela Bancaria Comercial (EBC), specializing in business and financial services, explained that entrepreneurs believe that financial planning is complicated, when it really is not and all you have to do is look for and approach the experts.
“Most of the entrepreneurs who do not have financial planning are due to ignorance, they think that it is something very complex, but There is no company that does not require good administrationbecause otherwise failure will be practically a fact. They believe that hiring a financial advisor is very expensive, when there are really viable options, there are even independent consultants who charge for the success of their work, they have to approach expert people who help them understand the finances of their companies”.
The need, an enemy
The high percentage of entrepreneurs who do not have financial planning can be answered by the fact that most businesses are created out of necessity, since GoDaddy’s Global Entrepreneurship Survey 2022 reveals that in Mexico, 47% of entrepreneurs start their business out of necessity or by the desire to have an extra income.
This leads entrepreneurs to seek an almost immediate return on their investment and have the flow of their first sales to cover personal expenses. In addition, little patience is one of the most common mistakes, when an entrepreneur does not have a long-term vision, it is difficult for the results to occur in the way they are expected, because a company takes time to become profitable in 18 to 24 months.
In this sense, Ramón Juárez explains that, when the ventures are born in this way, there is no clear vision in the verticals, a commercial, technical and financial analysis, or if their product or service generates the necessary value and demand.
When these projects are born to cover an economic need of the entrepreneur, it is in the background that the product, service and business model has a future vision of sustainability, then any financial planning loses meaning, since only immediate return is being thought of”.
Working capital, the key
The study, which included interviews with 513 founders, partners, managers and leaders of financial and administrative areas of micro, small and medium-sized companies and large companies from the 32 states of the Republic, also specified that good management in working capital It’s fundamental.
We understand three elements as working capital: raw material, the administration of accounts receivable and the liquidity that is needed. If a company manages to properly manage these elements, it will have a greater chance that its business model will endure in the face of any eventuality, the expert explained.
“When you start operations with a certain amount of liquidity and buy raw materials to start selling, the next thing will be the income of money and right there the problem begins, because you have to make decisions regarding the management of the flow and many entrepreneurs take these resources from working capital to cover non-business expenses, such as personal debts. By not reinvesting in your working capital, you will gradually go losing flow in your sales and that will translate into a lack of liquidity”, concluded Ramón.
