Personal Finance

Keeping a positive cash flow for small business


As an adviser, I am in a good position to know when businesses are facing cash-flow issues. Businesses that lack positive cash flow — paying more money out than they are bringing in — will almost assuredly be forced to shutter their doors sooner or later. Without positive cash flow, all businesses likely will not possess the agility necessary to respond to today’s quickly evolving business landscape.

Despite the fact that many decision makers understand the necessity of masterfully managing their cash flow, two-thirds of all small businesses still experience cash flow problems from time to time. So, if you find yourself struggling to maintain a healthy cash flow, first thing first: Remind yourself that you are not alone.

The good news is that if your business is having trouble maintaining a positive cash flow, it does not necessarily mean the end of the world is approaching. In fact, by doing your due diligence and reimagining the way your organisation operates, you may very well be able to get a handle on your cash flow, giving your business access to the capital it needs to grow.

If you are having trouble managing cash flow, or if you would just like to try and figure out how you could manage it even better. Below are some strategies to help improve your company’s cash flow position.

Do not focus on profit, focus on cash flow. More than 90 per cent of the SMEs I work with do not have a cash flow plan, despite having forecasts of profit margins. If the cash flow is in order, the profit will be in order. Many SMEs in Kenya do not celebrate their fifth birthday, they might have been a profitable business eventually, but they need to have a good cash flow to survive.

1. Set cash flow targets.

One way of controlling cash flow is by preparing and maintaining a forecast. Setting targets for the credit controllers is an excellent way to ensure it is given the necessary attention.

2.Ask for a deposit.

Companies whose product or service requires substantial cash or effort before they deliver are good candidates for asking clients for a deposit or milestone payment. Graphic designers, web designers, marketing agencies, PR agencies and even construction firms fall into this bucket. Not all clients may be willing to make a deposit payment. The only thing that is guaranteed is that you will not get what you do not ask for.

3. Agree on payment terms.

Establishing clear payment terms from the outset is important. If you do not start off knowing what your payment terms are, it is difficult to know when you are going to get paid. If you do not know when a payment is overdue, how are you going to manage your cash flow?

4. inform the bank.

Banks can offer businesses useful services such as overdrafts or credit, particularly when they are starting out. If you see anything unexpected, you go away and let the bank know so there are no shocks. Always speak to your contact at the bank every four to six weeks and be frugal about what you spend your money on.

5. create a payment schedule.

Every business experiences a gap between invoicing and payment. One excellent way to ensure these remain stable is to establish direct debit as a business norm for collecting receipts.

It allows a business to scale without increasing the costs required to collect the debt, while also providing a stable inflow of cash from which all payments can be made from.

6. Use technology.

Technology can make it much easier to manage cash flow. Accounting software can also help entrepreneurs with limited time for administration.

7. Invoice quickly.

Another option for managing cash-flow is to get customers to pay faster. This can take several forms. The simplest form is to give vendor discounts, for example, a two per cent discount if the invoice is paid within 20 days.

8. Make payments easy.

Making payments should be made as easy as possible for your customer. Try to avoid being paid by cheque as it will result in delays before the money arrives in your bank account, online payments are a much better option.

9. Seek favourable payment terms from vendors.

As they value their clients, vendors have a strong incentive to help finance their customers’ purchases. Getting an extra two weeks to make a payment could be the difference between missing payroll and expanding.

Given these strategies, consider which make the most sense for your business. Cash flow is the fuel that powers your businesses. By understanding the options available to you, you will be much better equipped to manage your working capital and, in turn, maintain and grow your operations.