Blog business

How to reduce cash flow problems in your small business

cash_flow_kenya

Cash flow problems are always there in small businesses especially those that are not yet established something that may end up causing their collapse even before they enjoy their first birthdays.

Most researches that have been conducted around the issue among many small business owners indicate that one of the greatest bothers is how to manage cash flow in the businesses.

In fact, most small business owners have been found to be confusing profits of the business and other cash that flow within the business leading to bad debts and lack of cash to reinvest into the business.

According to Victor Agolla, managing director at Viffa Consult Limited, a Nairobi-based consultancy firm on business operations, late payments by customers who take goods or access services on credit is one key issue affecting smooth cash flow within a business.

“Late payments compound cash flow management problems and this can even cause the loan market becoming expensive and unsustainable and eventually poor decision making on the future of the business,” said Victor.

Another cause of poor cash flow management in a business is the appetite for taking goods on credit and defaulting by some customers and lying on their financial status then stay for a long time before paying.

Some of these customers, says Victor, are very repulsive when business owners start becoming strict and insisting on cash payments.

“This has been a common challenge across the board but a smart approach to it is what creates the difference.”

So how can business owners manage this problem and keep their operations on course? Some of the following insights may help:

Sell less on credit and employ a pay-on-cash policy. As a business operator, always ensure that goods or services you offer are on cash limiting credit chances only to VERY trustworthy customers.

This may not go well with some customers but for the sake of the business, some tough decisions have to be made at some point.

Open several business accounts. Depending on the size of your business, it is encouraged to try having several business accounts such as a revenue account for the money coming into the business, an account that deals in paying creditors, a savings account, recurring expenditure and reinvesting account.

These will ensure you do not spend business money wrongly.

Diversify your sources of income. As a business person, always find other means of earning by opening other businesses alongside to help increase your revenue streams.

This is important when one business is doing badly, the other may bail it out and keep operations running.

Strictly abide by the basic budget. This is important though you can always allocate an emergency fund to avoid any future complications as it is believed that the lack of proper planning represents a central problem that affects business growth, profitability and sustainability.

Insist on full or deposit payments. If you are dealing with the delivery of goods or services, for instance, always ask customers to pay something upfront depending on your business policy or agreement with the customer. The deposit can be half the full cost so that once the good or service is offered, the full amount does not become an issue.

Seek external funding. Sometimes you may put all measures in place but cash flow management will always exist. In this case, it is advisable to look for external funding to keep you going. After all, businesses require some external funding at some point and banks are the first option for many.



Add your thoughts about this story

comments


About Kuza Biashara

About Kuza Biashara

Starting a business is a leap of faith even in the best of circumstances. We at Kuza Biashara are focussed to encourage these daring small business owners who have the potential to innovate and change the world by contributing to the nation’s economy and livelihood.