In business“Cash is King.” While the words may be a cliché, they’re also true — particularly for the small business. Survival often hinges on your ability to effectively manage the delicate balance of cash in and cash out.
Your cash flow is the money you have coming in from revenue and going out for expenses. Good cash flow management will ensure you always have money available for paying your expenses when they are due.
When there’s no cash on hand, everything is tough. Paying salaries, paying bills, buying supplies, not to mention making the investments needed to grow to the next level.
Money in the bank does not mean it can be spent. There could be 3 cheques that have not cleared and taxes have to be paid on the 15th.
The key to managing your business cash flow is understanding how things stand now, and where they’re likely to go. Even profitable businesses can fail if cash flow is not managed properly. If you don’t have enough money available to pay your lenders or suppliers, banks may foreclose and suppliers could cut supplies.
What are you doing to improve cash flow?
Many areas of your business can have an effect on how much cash you have available. By controlling your expenses and increasing your profits, you can improve your cash flow.
Monitor stock levels
Holding too much stock will tie up cash and increase storage and insurance costs. Practising good stock control will keep stock at efficient levels. Nothing kills cash flow like stock gathering dust.
Margins on products
If you are selling too many of your products at a low margin your cash flow will suffer. The same applies if your distribution costs are too high.
Beware of offering to many discounts as these can reduce cash drastically.
Follow up on overdue accounts. Managing debtors and having good credit policies will keep your cash coming in. You may also be able to negotiate longer payment terms with your suppliers. If you can get payment from your customers before you pay your suppliers, you will have zero out of pocket.
Review your pricing, use an advertising campaign or improve your customer service to see if you can increase profits. You may also want to consider growing your business.
If unchecked overheads can drain you cash. Question all expenses and make sure you are purchasing at the best price. Make your business more environmentally friendly and you may reduce costs such as power and water bills and minimise wastage. Remember to clearly communicate your policies on these items to your staff.
There are many areas in your business that can impact on your cash flow. It is important to understand how customer payment terms, supplier payment terms, loan payments, future spending decisions and other items can affect your cash flow.
Planning and monitoring your cash flow is one of the most important things you can do when running your business. This should also include how you will address cash shortfalls or surpluses if they occur.
Richard Branson said- “Never take your eyes off the cash flow because it’s the life blood of business”.
The writer is a Kigali Based business consultant and strategist.