Cash Management Made Easy

Seriously, though, you would think the fuss about “cash managing” your Business is the golden glove needed for a boxing match with Mike Tyson, unlikely, even in his older age. However, making Cash Management Easy, is in itself is “a simple task that makes it complex, but a complex task that will make things simple”.

So, how do you manage cash in a Business, and, keep it simple? Well, it turns out that, firstly, you need fortune-teller powers, or, at least know of one. Pretty difficult these days to know one, as they are not listed in any Phone Directory, but fortunately  “we” have been able to, amazingly, mimic fortune telling by devising our own crystal ball,  called Cash Flow Projections. With good techniques and some special effects, you can foretell your cash inflows and outflows. Voilà! Cash Management control! But, a word from the wise: Cash Projections are only as good as the underlying assumptions (what we put into them)

Just so we understand the concept of Cash Management, in that, we are managing the flow of Cash in and out of our Business. Incidentally, Cash Flow was first “coined” by a Canadian, by the name of Nestor Rebinsky, who discovered that if you crafted a small boat, out of a note and placed it on a fast flowing stream, your cash would indeed flow away, never to be seen again. It was from this simple observation that Nestor understood that in order for a Business and the Economy to work as a whole, cash must be in constant motion, idle money is lazy money!

Secondly, we all know the best way to maintain a positive Cash Balance is, at least, not to spend more than what you start with. The issue therefore becomes, do we know how much we can spend, or how much we have to start with. In a survey done by Phillip Campbell in the book “Never Run out Of Cash”, he found that 25% of Business Owners did not know how much they had to start with, and, 79% of Business Owners did not know how much they will have in six months (many at R0.00). Sad but true, but “happiness is a positive cashflow”

More Cash Management perspectives to follow

Top Tips: Business Cashflow for Small Business

Top Tips: Business Cashflow for Small Business

Those who have been reading the previous blogs will have become familiar with the advantages of controlling your business cashflow, resulting in some “less worry” about whether the cash in your business will cover your expenses or wages, at the least. Just to get some perspective on the essence of cashflow management for small business, I have put down some tips to aid in achieving the “less worry” mindset.

1. As a small business, it’s imperative that you keep the cashbook and cashflow forecast in front of you as often as possible, daily would be my recommendation. If, as the business owner, this is not possible, get someone to keep tabs for you as often as possible. This is more so, important, for start-ups or young business, as growth is more-than-not, the number one priority and growing a business requires money and any mismanagement of these funds will lead to finding yourself sinking in a quicksand of expenses and unpaid bills

Top Tips: Preparing a cashflow forecast is essential to having the information at hand about your businesses cashflow and where it’s heading. Download a templete  from the following link which you can incorparate into your business: http://office.microsoft.com/en-us/templates/small-business-cash-flow-projection-TC001113236.aspx

2. Invoicing is an integral part of ensuring cash continually flows into your business. You would be surprised as to how many small business do not make this a priority in their business and only react and inspect this process when cash becomes a problem .Invoicing activity, if adhered to, has a significant impact  towards your cashflow in that, 1)presents to your customers a formal request for payment  2)is a formal agreement of goods/services rendered., ensuring all parties are on the same page.

  

Top Tips: Invoice promptly and accurately. This will ensure you received you cash in the shortest possible time. Add stringent follow up on the invoices dispatched

3. Collection of due payments needs to be part and parcel of your business activity. If your business is composed primarly yourself, it is imperative you set aside time during the course of your trading, say once, twice a week, to make  collection calls, even if it is just a quick reminder your customers. One aspect to collections to remember, collections start from the point a customer puts through an order, not when the money is due. Use all communication medium available, including social media to ensure you get the message to your customers.

Top Tips: Ensure you establish a collections plan from the onset with your customers i.e. COD or 30 days. This effectively will be your fall back plan when doing your collections and when experiencing problematic customers.

4. Easy of payment. Make payment by your customer as easy and flexible for them as it allows. You will find as a small business, particularly with a few big customer, if payments to you are “painless”, in terms of administration, these customer will make due payments to your business in preference, due to less admin. This in itself has competitive advantage to be utilised As the business owner, consider payment structures such as online payments, EFT, payments through mobile phones, over cash payments or cheques.

 Top Tips: Easing payment process will ensure your customers will be open to making payments to you, which do not involve extensive admin., ensuring you receive your cash quicker.

Consider these options in building a healthy business cashflow and ensuring your business survives and grows.

If you need further informations, please drop me an e-mail - Dumikm@Optikollect.com

Small Businesses Need for Cashflow Management

A recent survey conducted by Finscope on the composition of small businesses in South Africa, states that there are 5.6 Million small businesses and of those, 39% find finance as one of the major obstacles in business, particular emphasis on cashflow and  record keeping. These aspects of finance are most prevalent in start-ups and businesses under 2 years, as these are most susceptible to changes in cashflow and lack of record keeping

Small businesses aversion to the significance of Cashflow is based, to a large degree on awareness, by the business owners, of the need to manage cashflow from the onset. So long as more money seems to be coming into the business than going out, many owners do not give cash management as second thought.

 Many small business owners rely, to a large extent on their bank statement, in terms of evaluating their cash flow status at any one time. Cash in the business is not the balance on the bank statement, as in more cases than not, expenses and income paid or receipted may not reflect on the bank statement due to timing.

Cashflow can be very difficult to predict, in comparison to profit and loss, particularly for small businesses that are dependent on a few large customers. It can be further complicated by seasonal fluctuation depending on the type of business environment operated in. It is therefore of great importance that tools be used to keep a precise status on the cashflow at any one time. Managing cashflow is really nothing more than managing information.

For small businesses, to begin with, establish a cash cycle for your business. This draws out how cash moves from cash outflow (purchase, expenses, wages etc) to cash inflows (Sales, investments etc) and what occurs to the cash availability between these two activities. This in most relevant in business that have a high usage of cash in terms of generating their revenue.

Secondly build and establish your cash gap. By establishing your cash gap, your business will be able to identify where the cash is most utilised in your cash cycle and how long it takes for your cash to move through your business and generate income.  The cash gap analysis is composed of the 3 major element of your working capital, a)Accounts Receivable, b)Accounts Payable and c)Inventory and in each, you establish how long it takes to a) get paid, b) pay c) get(manufacture) and sell you product, and the measurement of this cycle within the cash gap is the conversion period. The conversion period measures the amount of time it takes to convert your product/service into your cashflow.

Once the cash gap has been established and the conversion period known, a cash projection should be drawn for your business. A cash projection spreadsheet is built to provide a picture of your cash needs for the business over a period of time, say 6 months or more. It helps the business owner see potential cash gaps, periods of cash outflows exceeding cash inflows and therefore allow the business owner to take steps to avoid expensive, uncontrolled overdrafts or failure to meet important expenses.

Sound cash management will give your business added advantage, as say, cost reduction in your manufacturing process, if managed efficiently. Small business must,  be vigilant in their analysis of their cycle to ensure they do not become insolvent whilst trading, through mismanagement of their cash.

How to prepare a cash flow forecast

Begin the spreadsheet by entering the amount of cash you've currently got at the start of the period for which you're preparing the forecast. Then add cash inflows you expect to collect during the period.

Your cash inflows will rely on the method of payment your customers use – cash or credit. Enter the expected cash sales immediately and the credit sales when your customers are likely to pay you.

On credit sales, be specific about when the money is due for collection taking into account your customers' payment histories and the economic outlook. Then schedule the timing of payments for your business expenses. Again, it's vital that you're specific about the amount and the month each expense falls due.

Next add cash outflows from the items listed in your expenses forecast including supplier payments, loan repayments, credit card payments, and taxes. Consider regular, irregular, and seasonal payments such as rent, repairs and maintenance as required, and inventory purchases.

Finally reconcile the cash in/out section. In starting have a section for the Opening balance of your businesses cash on hand. Combine with the net of cash inflow and cash outflow to get your closing balance for that month. Below is a simplified structure of your cash flow forecast. This format will vary from business to business.

                                    Jan                  Feb

   Cash In                                          700

Loans                          1000   

Total In                     1000                700

   Cash Out                   

Materials                    500                  200

Drawings                                            200

Vehicle Running        100                  50

Office rent                  100                  100

Insurance                  200                 

Telephone                   50                   20

Total Out                 950                 570

         Reconciliation                

Opening Balance        0                      50

Total In/Out              50                    130

Closing Balance         50                    180