Many business owners manage the finances of their businesses by means of their bank account. This is a risky practice as the bank account does not provide a true reflection of the real cash flow status of the business.
Here are 4 actions you can consider applying in your business:
1. Control your cash flow by reviewing the management accounts for the last 12 months.
Look for trends where your cash flow was under pressure. Try to determine what the reasons for the cash flow “pinch” were. Are these events likely to repeat themselves in the next 12 months? What can you do to pro-actively plan the cash flow bridging of these events.
2. Do a cash flow forecast.
Ask your bookkeeper or accountant if you do not already have a cash flow forecast (12 to 18 month period) for your business. A cash flow forecast can help you to make more informed decisions about taking on more staff, changing your prices, tendering for a big contract, moving premises or changing suppliers. It also helps you to identify the suppliers who are instrumental in floating your cash flow.
Once you know who they are, you can work on cementing the relationship with them, bringing about more business surety. It can also help you to pro-actively identify cash flow challenges, making it possible to plan actions to bridge the cash flow gap by acquiring finance, or planning on how to create increased cash flow over the impacted period. Understanding the consequences of just some of the main problems which may occur, can significantly reduce the impact they will have on your business – forewarned is forearmed!
3. Become leaner.
The cash flow forecast can help you to identify areas in your business where expenses can be trimmed down. With costs you can decide to “keep it, reduce it or eliminate it”. A rand saved is a rand towards a positive cash flow.
4. Get more cash in by considering the following options:
- Offer cash discounts to customers instead of payment terms – get the money into your bank account a.s.a.p.
- Sell off excess stock – carry the optimal stock levels.
- Have a sale and focus on cash sales.
- Sell redundant assets – maybe a machine which has already been replaced, or reached the end of its productive life cycle.
- Reduce your debtors’ book – debtors discounting can be a consideration to release cash in your debtors’ book.
- Make sure your staff compliment is aligned to the workload requirements – nobody wants to lay people off, but in the larger scheme of things it might be the saving grace for the business.
“When it comes to money, ignorance is NOT bliss. What you don't know CAN hurt you.” – Sandra S. Simmons, author.
To support business owners with the important task of business planning, Sanlam gives you free access to the book Your Annual Business Game Plan for Success, which provides an easy and straightforward framework needed to draft a well-crafted game plan that will create the positive change and growth necessary for business success.
The content in this article was provided by Jannie Rossouw, Head: Sanlam Business Market. Sanlam is a diversified financial services group, headquartered in South Africa, operating across a number of selected global markets.
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