Avoiding cash flow hazards helps build a successful business.
All the answers to your unique business lifestage questions
Knowing exactly how much money your business has and how much it owes others may sound simple, but often isn’t. Cash flow management is the art of ensuring that you have more money in your business than you need to pay out, and is essential for a business to survive and prosper.
Leigh Livanos, head of start-up business at Standard Bank, says a business can take the following four steps to ensure a positive cash flow:
1. Get the balance between cash inflows and outflows right. This can be achieved by:
- Examining suppliers’ and customers’ credit terms and considering reducing the sales cycle time to generate cash quickly
- Using point of sale machines and accounting systems designed for SMEs, such as those offered through Standard Bank’s BizLaunch offering, to process transactions quickly
- Asking for deposits if you make a capital outlay for a customer
- Chasing payments of slow payers
- Reducing payment terms to 14 days, or even 7 days, and charging interest on overdue accounts
- Ensuring that employees are properly trained on products or services so they can drive sales.
2. Manage pricing so that a profit is made after all costs have been accounted for. Also consider not discounting as this reduces profits.
3. Managing creditors by:
- Negotiating 60 or 90-day payment terms with suppliers
- Increasing credit limits with suppliers to get more stock
- Pushing for discounts on bulk purchases and for prompt payments
4. Controlling expenses by:
- Reducing costs where possible
- Consolidating business loans
- Comparing leasing and financing options and costs, and selling off items that are no longer needed
- Selling off redundant stock, even at cost, to get cash into the business.
“The skills required to manage cash flow can become a positive habit if you use them often. They help build your business for the future,” says Livanos.
During the course of running and growing your business, you will need access to both short-term and long-term cash savings to pay salaries, suppliers, or even to save for a future project or large payment. Standard Bank provides a range of flexible Savings and Investment solutions, with competitive interest rates, to help you meet your business’s savings and investment needs.