BUSINESS
Finance & Banking
is low F ash C the Income re u t i d n e p x E d n a r u o Y f o n r e t t a P Business
gap occurs it means your cash inflows and cash outflows don’t keep pace with each other, leaving your business short of cash. This is an especially common problem for small businesses, where cash outflows may repeatedly exceed cash inflow.
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ash flow management is the lifeblood of your business because it enables you to track cash as it flows in and out revealing to you the causes of cash flow shortfalls and surpluses. As such it’s imperative that you understand both the inflows and outflows accordingly. Cash is generated into a business through: • Sales of your product or service. • Loan or credit card proceeds. • Asset sales. • Owner investments.
She says the most important aspect of cash flow management is avoiding extended cash shortages because when you’re having a gap between cash inflows and outflows you won’t be able to stay in business for too long or pay your bills for any extended length of time. “Therefore, you need to perform a cash flow analysis on a regular basis and use cash flow forecasting so you can take the steps necessary to head off cash flow problems.” Ndlovu says as a business owner you have to keep a close eye on your cash flow because by doing so, you will forecast potential cash flow problems before they occur. This helps you see that the business is in the red, which is a wakeup call to take action immediately.”
Cash flows out of a business through: • Business expenditures. • Loan or credit card principal payments. • Asset purchases. One of the easiest ways to monitor • Owner withdrawals. your business cash flow is to compare the total unpaid purchases to the total These cash inflows and outflows can be sales due at the end of each month. “If categorised into three main business parts: the total unpaid purchases are greater • Operating, this covers sales and than the total sales due, you will need to business expenditures. spend more cash you receive in the next • Investing, this covers asset sales and month, indicating a potential cash purchases. flow problem.” • Financing, this covers loan payments and proceeds, and owner investments Ndlovu emphasises that business owners must see themselves as and withdrawals. employees and as such must earn Financial Adviser at Mmafana a monthly salary and not use the company’s money for personal Accounting, Tax and Payroll Services, expenses. “That will make a huge Lucy Ndlovu says when a cash flow
difference and serve to grow the company because knowing that they are able to get a salary will make them work hard.” Here are some tips on how to manage cash income more effectively from Zandile Nkabinde, who’s a practitioner at Azuka Payroll & Accounting Services: • Take full advantage of creditor payment terms. If a payment is due in 30 days, don’t pay it in 15 days. • Use electronic funds transfer to make payments on the last day they are due. You will remain current with suppliers while retaining use of your funds for as long as possible. • Communicate with your suppliers so they know your financial situation. If you ever need to delay a payment, you will need their trust and understanding. • Carefully consider vendors’ offers of discounts for earlier payments. These can amount to expensive loans to your suppliers, or they may provide you with a chance to reduce overall costs. • Do not always focus on the lowest price when choosing suppliers. Sometimes more flexible payment terms can improve your cash flow more than a bargain-basement price. • Develop discipline and curb spending. You have already taken a big risk by starting your own business. The last thing you need for your business is a financial loss. An accountant or business financial planner can intelligently guide you through the necessary steps to reach your financial goals, but if you don’t have self discipline, all efforts to reach financial fitness will be in vain.
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