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Overtrading threatens survival of businesses

A consulting firm has disclosed that business overtrading is the reason why some influential business entities in Malawi collapsed in the past.

Head of Research and Consulting at Fletcher & Evance, Handsome M’bwana, has said that the tendency by companies with a dominant market position to take up a big share of the supply chain is killing business growth in Malawi.

“Overtrading happens when the current assets or working capital are insufficient to bridge the gap between funding new work and getting paid for invoices raised within a company. And this misconception has led most organisations to expand into new product lines or services when they do not have the necessary resources to manage the expansion,” he said.

M’bwana added that overtrading often occurs when companies expand their own operations too quickly and aggressively.

“It also means taking too much work, and providing a line of services which your company currently cannot handle due to the current capacity and resources available within the company,” he said.

But Mbwana observed that most business executives do not admit the fact that their company is overtrading which he said just serves to aggravate the problem.

“Instead, they will provide the defences from academic schools of thought that back their standard. This is a recipe for successful failure,” he said.

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