Spring in South Africa comes at a time when the festive season is around the corner and consumers are beginning to think about holidays.
For the small business owner, who also happens to be the financial manager and fulfil a number of other jobs in his business, spring is the time to get down to basics and prepare the business for the busy time ahead.
It is easy when getting involved with the many things that have to be done in a business to lose focus, says Ethel Nyembe, Head of Small Enterprise at Standard Bank. However, it pays once in a while to stop, check on the business and plan your way forward.
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“The process of spring-cleaning a business is something that should be done at least once a year. It is a time to examine all aspects of the business- including finances- and to get things right for the rest of the trading year.”
“The place to begin is by examining your shelves and store rooms and reviewing your stock. This activity will lead you on to naturally examine the financial aspects of your business.”
Ideally, at least five activities should form part of a business spring-clean, says Nyembe. These are:
1. Checking and reviewing stock on hand
Stock lying on a shelf or in a storeroom is money that is being non-productive. Assess what sells well and increase the shelf space allocated to these items.
Take stock that has been accumulating dust, reduce prices (but still keep a healthy profit margin built-in) and have a sale. There is no better time to have a sale then during a new season.
Use the money you make to buy stock that sells quicker. You can also plan ahead and keep the focus year-round, by creating a sales sheet which helps you identify quickly what is selling and what is not and replenish stock accordingly.
2. Streamlining your purchasing
Adopting a ‘just in time’ approach to ordering stock means that you get in stock just in time to sell it. You then don’t have vast amounts of stock piled up waiting to be sold.
This means that precious capital is preserved, cash flow is maximised and money can be retained for buying items that sell easily.
3. Examining your payment systems
You can accelerate the cash flow in your business by making sure that you have all the options required to help your customers pay.
It costs money to accept cash, drive to a bank and manually pay it in to an account. The more point of sale options available for payments at your business, the better your service and collection of payments.
4. Spring-clean your financials
Things to consider when spring-cleaning your cash flow and financial management are:
- Checking your accounts. Where customers have accounts and have histories of being late payers, decide whether what they cost you in terms of delayed payment is worth it. Take steps to collect outstanding money and close accounts that haven’t been used for some time. Get bad payers off your books.
- Change payment terms and offer good customers discounts for early settlement of invoices. In these tough financial times, people and businesses are all trying to save money. Discounts help them and help you by boosting your collections, increase the health of your balance sheet and keep cash flow positive.
- Approach your suppliers for extended payment terms – for example: Ask for 60 days instead of 30 days. This can help stabilise your cash flow. If they insist on a 30-day cycle, ask for a discount for early payment.
- Look at the cycles your business goes through. If you have quiet periods during the year, consider applying for an overdraft that you can use to smooth out the trading bumps. It means that you don’t have sleepless nights and you can meet your financial obligations.
- Relook your operational costs. Examine everything from rentals, systems, phone, electricity and transport costs. Make cuts where you can, as these savings go straight to your bottom line.
5. Examine the costs of replacing and upgrading equipment and consider new finance models
Review your equipment needs and assess the service life you can still expect from these investments. You may find that some equipment is old and requires maintenance frequently or simply use too much power.
When equipment is too expensive to maintain and new and more efficient machines are needed, consider your options. You can:
- Purchase new equipment or vehicles outright.
- Buy through an instalment lease instead of having a major cash outflow from the business, this will allow you to regulate the time and costs of replacing new equipment.
- Opt for a lease instead. Although this may be slightly more expensive on a monthly basis, there are major advantages. Most office and other equipment include a maintenance agreement, so all service costs are covered in the lease. Maintenance therefore takes place regularly and equipment remains reliable. The contract can include an option to upgrade to more sophisticated machinery at certain times during the lease. This reduces operational costs and ensures you always have state-of-the-art equipment in your business. At the end of a lease, equipment is returned to the lessor, so you have no concerns about disposing of old equipment.
The above five activities form the core of activities designed to sharpen the focus of a business, however it is worth spending time examining everything about your business.
Pausing to check what your competitors are doing, how they are marketing their businesses, their products and pricing structures can also reap major benefits.
“A good spring-clean also allows you to get reacquainted with your business – something essential to small business owners who get caught up in everyday tasks and are unable to spend enough effort on developing strategies and plotting the way forward for their companies,” explains Nyembe.