Cape Argus E-dition

Four effective strategies to manage cash flow

BEN BIERMAN Bierman is the managing director of Business Partners

CASH flow ranks high among the top concerns for small businesses. And because business comes down to rand and cents, balancing the inflow of revenue with the outflow of expenses, and ensuring that your business remains liquid to deal with unexpected events, can be a makeor-break factor.

The way you manage your business’s cash flow has implications for whether your small and medium enterprise (SME) remains financially viable in the long-term and will affect your business’s ability to obtain credit.

These four strategies are simple ways of managing your cash flow efficiently.

Use bundled deals to add value

For small businesses, offering discounted deals is not always a financially viable way of moving stock faster to increase profitability, particularly during slower periods. An alternative is to create bundled deals on groups of products or services at a nominal discount that will be offset by the fact that offering deals of this kind will increase the customers’ basket size.

Bundled deals offer SMEs a solution to generate more cash flow and are also a great way to add perceived value to your offering. Bundled deals work particularly well with bargain hunters or pricesensitive customers for whom added value may be a deal clincher.

Negotiate with suppliers

A large component of effective cash flow management involves managing expenses. The rule of thumb to achieve positive cash flow is to lower expenses or stagger the payment of expenses to avoid a large outflow of cash at one time. Negotiating payment terms with suppliers can help in this regard.

Your suppliers may be inclined to offer a discount on regular orders, or it might be possible to organise a discount on bulk orders placed by a group of SMEs that share the same supplier. Another option could be to negotiate 30-day payment terms at no extra cost, or split payments. This will ensure that expense payouts are more spread out and that the business has time to realise revenue.

Incentivise early payments

One of the biggest hurdles small businesses face is late payments.

Last year, the call for SMEs to be paid timeously catalysed a campaign called #Payin30, which encouraged corporates to pledge to pay their small business suppliers within 30 days.

To remedy this, small businesses could offer an incentive for early payment, in the form of an immediate discount or a discount on the next purchase. Conversely, you could enforce a penalty fee for late payment. Both strategies can be effective at ensuring that you receive revenue timeously and your business does not suffer the knock-on effects of a late payment.

Build a safety net reserve fund

Having an emergency fund is just as important for small businesses as it is for individuals. Commit to allocating a monthly amount to an emergency fund that will tide you over should the business run into cash flow problems.

Ideally, the emergency fund should cover three months of expenses such as staff wages, operational costs and utilities. A reserve fund can carry the business over when profitability is low, costly equipment breaks or during other business disruptions. The beneficial implications of a back-up fund for keeping your credit record intact during tough times is invaluable.

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2022-06-26T07:00:00.0000000Z

2022-06-26T07:00:00.0000000Z

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