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Staying Cash Positive in the New Year

Written by Anni-Mari van Wyk

On Feb 12, 2020

As we all know, cash flow is the lifeblood of any business and getting things right from the start of the New Year is the best thing you can do for your start-up. You’re probably even considering getting finance for your business, but you should know – banks are implementing stricter lending criteria and this places greater strain on your business as the availability of cash becomes limited.

For savvy entrepreneurs, there are several strategies that one can apply to ensure that you have the required cash to continue funding your business operations throughout the year.

Here are a few strategies to get you going:

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Conduct a consistent overview of your costs

This is a particularly good time to review all your costs in your business and truly question each expense. Often this exercise reveals unnecessary costs that do not impact the effective operation of the business.

Set yourself and your team a target to be able to reduce costs by at least 10% and then review these costs with each department. Start small and work your way up with every single expense of the business and narrow everything down.

Managing your income

You must review your debtors at least weekly, dependent upon the type of business you are running. Keep regular contact with all your customers, particularly those outside of their credit terms.

Chase payments from these customers regularly but fairly and ensure that you apply your own debtors’ policy and procedure. If you find this difficult to do, appoint a third party to manage your debtor’s book for you but do not lose touch with your customers.

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Invoicing

Ensure that you are invoicing your customers after ‘project’ and do not delay invoicing for a particular day in the month. To be on the safe side as a small business, you can even start invoicing for 50% of the work before you start a project and the other 50% on completion. This ensures that your customers are required to pay you timeously for the work done.

Review your Supplier credit terms

This is an important process to go through but recognise that your suppliers will be managing their cash flow in their ways as well. If you are a regular supplier and have a good payment history, they will be more willing to discuss an extension of payment terms with you. You must discuss any ‘broken agreements’ with them as soon as you are aware of them. If new payment terms are agreed, ensure that you can manage them and they complement your financial goals and cash flow projections.

Cash Flow Cycle

This is an ideal time to review your cash flow cycle to determine the length of time it takes from receiving an order to invoicing and receiving the cash in your bank account. Identify each step in the process and determine whether there are ways to shorten the current cycle.

Bank Finance

It’s always good advice to keep communication with your bank open but this is even more important in a recessionary environment. Should you require additional financing from your bank to be able to fund short- term shortfalls, ensure that you have a good business plan to support your application, as this will give the bank the comfort that you are ‘on top’ of your game, particularly where your cash flow plan is concerned. While bank finance should be your source of last resort, do not leave it until the last minute.

If your company’s expenses exceed its revenues, the net loss incurred can drain cash. Therefore, it is very important to maintain positive operating cash flow. Without it, a company must find investors, pursue short- or long-term debt or rely on its owners to inject more equity to offset the negative operating cash flow.

For more information, go to our website on www.cvwab.co.za for articles and costing of our services.

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