Cashflow problems kill companies
Are you a business owner struggling to get to grips with how fast your business is growing? The order book is full and there is no time for watching the finances?
Cashflow not flowing easily but flying out of your bank account faster than you can handle? Never seem to have any money left over but you are working yourself to the bone?
If this sounds like you, its time to slow down and understand the financial state of your business. I know I know! Where are you going to find the time to do this? Isn’t that what accountants are for?
If you don’t find the time though your business could fail.
Did you know that one of the leading causes of small business failure in South Africa and indeed the world is a lack of understanding how cashflow impacts the financial health of their business?
Cash is not the same as profit. Often companies have to pay for raw materials or rent or other expenses BEFORE they get paid by their customers which is often AFTER delivering a product or service to them.
Your goal should be to create a business that accumulates cash as it grows. One way to do this is to create a positive cash-ﬂow cycle by getting customers to pay you sooner while you lengthen the time it takes you to pay your expenses. In addition to maximising your overall proﬁtability, having money in the bank makes running your business that much more enjoyable.
If you invoice your customers in installments, could you charge them a greater percentage of the overall price up front? Could you evolve your business into a subscription or membership model in which you invoice customers before they receive the benefits of their membership or subscription? If you sell a service, could you do more to ‘productise’ or package your offer and thereby make it easier to charge up front? Could you reduce the amount of stock you pay for in advance of needing it? Could you lengthen the time it takes to pay some suppliers?
Without good control over your cashflow your business could fail but don’t panic. There are ways to get back into smoother waters. #Justasklinda