Any type of Business need a positive Cashflow.
What is Cashflow?
– is the movement of money into or out of a business, project, or financial product. It is usually measured during a specified, limited period of time. Measurement of cash flow can be used for calculating other parameters that give information on a company’s value and situation.
What it means by positive / negative cashflow?
Positive cash flow is when your business has more money coming in than it needs to pay bills.
Negative cash flow is when your business is spending more money than it takes in that is, cash outflow is larger than cash in flow.
Say you have stock amounting to R 1000.00 and 80% of this stock is being bought on credit, this already means there is less cash coming in until you are paid at a later stage. This is an abnormal way of running a business. Why? Because with what are you going to buy stock when it is finished? Is business going to stop until you are paid? What if you are going to be paid after three months? Sure you are not going to wait for three months to buy stock for you to be in business again, therefore you need to control how you are being paid.
Advice: Please have proper and suitable trading terms in place. Have a contract with your customers on when payment is due and expected. It can be after 10 days, 15 days or 30 days.
Tip: Do not make the payment terms similar. For example do not make all your customers pay after 30 days because this will still mean there is no cash movement in between.
Failure to maintain a positive cashflow will result in your Expenses becoming more than your Incomes. Now this will definitely kill your business. A business has bills to pay, could be rent, electricity, stationery, etc which all this helps for business operation. So if you are not getting income from your sales on a regular basis then it means this expenses will remains unpaid, the business debts will grow plus they might charge you interest for no or late payment. Already this is eating on the profits you were supposed to be making from the sales. This will be the same case if your payable are more than your receivable. The reason you must manage you accounts wisely and gain a full good control over them, both internal and external.
How do you trace customers that causes a negative Cashflow?
• On a monthly basis gather all the record of your credit buying clients – this is called an age analysis report. This way you will be able to see who are your slow paying customers and then you must tighten up the credit terms. Extending credit to slow-paying customers can lead to cash flow challenges. Negotiate new terms with existing customers who have been slow to pay, and set stricter terms for new ones. Always check credit reports before extending credit. If appropriate, ask for deposits or partial payment in advance so you have the cash on hand to buy materials or inventory.
You can also negotiate with your regular suppliers to score some extra income. Try to have good suppliers that you always buy from, negotiate with them to receive a discount on the goods bought as a guarantee that you will always buy from them. Discount received is treated as an Income.
Managing cash flow is key to assuring enough cash is on hand to cover expenses, take advantage of opportunities and grow your business.
I always says Cashflow is the heartbeat of every business. If the heartbeat is slow then your life is threatened and in danger. Human heartbeat need to be pumping at an acceptable rate all the time, same as Cashflow in Business.
Compiled by Dikeledi Seoloane – On behalf of Matsobanemetja Business Consulting (Business Coaching Division)
Contacts: 0828280754 / 0848961752
Whatsapp : 0828280754
Email : d.seoloane@gmail.com
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