Keeping Your Cash On A Tight Leash

Managing cash flow is vital for the survival and growth of businesses. Thus, as a business owner, you need to constantly balance the timing and amount of your costs with those of your income. In this article, we will look at the various aspects of managing and improving the cash flow of your business, including dealing with customers, suppliers and other stakeholders.

How to measure your cash flow

In the ideal situation, you will need to have more money flowing into the business than out. This will enable you to build up cash balances to pay short-term expenses, fund growth, and reassure banks and investors on the health of your business.

However, as cash inflows usually lag behind expenditures, it is crucial to have enough cash in your business to cover daily operating costs. Wherever possible, you should strive to accelerate the inflows and slow down the outflows.

Cash outflows include:

• Purchase of stock or raw materials
• Purchase of fixed assets – machinery, computers, office furniture, etc.
• Wages, rents and daily operating expenses
• Income tax, Goods and Services Tax (GST), Sales and Services Tax (SST), etc.
• Excess of receipts over payments – with deficits shown in brackets
• Loan repayments and dividend payments

Cash inflows include:

• Payment for goods or services
• Interest on savings and investments
• Obtaining a financing or loan from a bank
• Shareholder investments

Many of your regular cash outflows will take place on fixed dates. Thus, you must always be able to meet these payments to avoid an unhappy workforce or large fines.

Improving your cash flow

To improve daily cash flow, you could consider the following:

• Get your customers to pay earlier
• Use factoring services for unpaid invoices
• Chase debts promptly and firmly
• Ask suppliers for better credit terms
• Boost your sales and profitability
• Order less stock but more frequently

You can also boost your cash flow by borrowing money, or pumping in more money into the business. This can allow you overcome short-term cash problems or fund short-term growth, but your cash strategy should not rely on such infusions.

As a business owner, you might want to consider taking Digital SME (DSME) loans to improve your cash flow. For more information on DSME loans, please click here.