Positive cashflow leads to success
Provided by Business Partners Ltd, South Africa's leading investor in SMEs
In the current economic landscape, it comes as no surprise that business owners choose to adapt and change the focus of their business strategy. The starting point, is to realise and accept that the business environment has transformed and looks very different than a year ago.
The market may have changed, or shrunk, or the trend may now be different. How much research are you doing to stay on top of your game? The age-old statement "cash is king" has never been more true than it is now. Many businesses are profitable, but run out of money.
Managing your cash flow throughout the year can help to alleviate the pressure one feels around this time. This means you have to perform a cash flow analysis regularly and use cash flow forecasting to take preventative measures well ahead of any potential threats.
The following are examples of situations that may lead to cash flow problems and precautionary measures that can be implemented:
- Poor credit control: If you don't get paid on time, you will in turn default on your obligations. You can counter this by having strict credit policies in place, and not being afraid to refuse work from large enterprises
- Order fulfilment: If you don't deliver on time you will not get paid
- Plan your workload properly and only accept orders that you are capable of completing. Inform your customers in advance if you cannot deliver on time
- Ineffective marketing: This may result from ineffective use of marketing tools. Create a marketing strategy and plan to reach your customers effectively. Ensure your message is correct so you don't attract the wrong kind of enquiries
- Poor cash controls: Having poor cash controls can be detrimental to your business, even if you think you have sufficient cash. Impose stringent controls on cash because it is an important survival tool
- Inefficient ordering systems: Systems should be user friendly and customers should be able to deal with you efficiently and not be subjected to complicated procedures
- Poor management accounting: Every business should be able to account for its activities. Proper record keeping leads to accurate accounting
- Inadequate supplier management: Suppliers might overcharge or take a long time to deliver stock. You need to create a system that will help you to manage your suppliers
- Poor controls of gross profits and/or overheads: Every business should develop its own pricing model and prepare budgets to ensure that overheads are kept within targets
There are many different situations that can cause cash flow problems, but these are the most common.
Always remember that by building up a positive bank balance, you can trade effectively and expand your business. Manage this positive bank balance to earn you good returns on your money. After all, entrepreneurs are in business to make money.
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