The most critical failure in a business that sinks small companies is cash flow. For example, paying Vat before your invoices from clients are paid is just one element of running a business. In South Africa, significant issues can affect your business cash flow.

Managing your supply and payments before you have been paid for many small and medium companies can be traumatic.

Here are some of the top reasons for cash flow problems in a business:

Bad financial planning.

When you fail to plan for your deficits, it can negatively affect your business. Paying suppliers late can also create issues with fewer discounts and benefits that you would typically take advantage of.

If you need to pay suppliers and staff, yet clients have not settled their bills yet, it is a tough decision to make.

You also need to consider your Vat submissions and tax payments. Create a cash flow buffer with savings or speak to a business financial lender who will offer solutions to help you through the tough times.

Poor inventory management

If you oversupply the unnecessary stock and take too long to move it, you create issues for your business. It is a critical mistake and can sink a business.

Consider managing smaller orders, even if you have to pay a higher price, to keep the majority of your liquid cash in your account.

Seasonal variations

Many businesses have seasons where they do better than other months. Restaurants fare better in summer when people go outside and socialize more. A company that deals with older customers may see that winter is slow as their customers hibernate in the colder weather.

Excessive salaries for senior management

Often, managers expect high salaries from a startup or small business. You cannot expect a corporate salary with a smaller enterprise initially. Ensuring the company is cash-flow rich before over-investing in wages is crucial. Consider outsourcing or contracting in some skills to not have to invest in too many people too soon.

How to fix your cash flow issues:

1. Use a monthly business budget, and stick to it.
2. Access a line of credit that you only pay for if you use it—a financial safety net of sorts.
3. Invoice your customers on time and chase for payments
4. Negotiate your payables, to longer terms, without penalties
5. Assess and reduce your expenses. You will be surprised at the wastage you can get rid of when you audit your business expenses.
6. Increase your pricing. Fuel is on the rise, and if you do not act fast, your business may start to pay the price for not increasing pricing accordingly.
7. Upsell and cross-sell to your customers. It is cheaper to sell more to an existing client than find and onboard a new one.
8. Maintain a clear view and pipeline of your stock on hand. Overinvesting in stock can be detrimental to your business.

Whatever your business, you need to keep your head up to see the consumer and macro trends that will affect your business in the short and long term. Planning is key to staying ahead of the pack and ensuring your business remains liquid.

Bizcash is a South African business that supports and grows SMME’s with alternative funding options. Please speak to our team to find out more about how we can help your business remain in business, through the tough times. Get in touch with us on 0861 93 93 93 or email us on info@bizcashscf.co.za or contact us here.

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