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Cash Flow

7 Things Every Entrepreneur Should Know About Managing Cash In The Business

Every entrepreneur needs to know how to prepare for cash, manage it effectively and mitigate fraud.

Chris Ogden

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Cash is complicated. It can’t be tracked properly, it opens up avenues for fraud, it gets stolen, and it is difficult to manage. It’s also an unfortunate reality that, in South Africa, cash payments and transactions are both inevitable and essential. So how can the entrepreneur overcome the challenges of handling cash? Here are seven ways…

1. Digitise

There are many ways to manage payments in the market today. You can Snapscan, you can Zapper, you can EFT and you can use an app to send money from a wallet to a mobile number. The problem is that none of these options recognise the fact that cash is still the leading method of payment in most markets. So, to really accommodate cash, the entrepreneur needs to look to digital solutions.

You can still physically collect cash, but digitise the transactional information so that you can easily identify the transaction and reconcile the cash collector.

Related: 5 Cash Management Tactics Small Businesses Use To Become Bigger Businesses

2. Protect the consumer

Ensuring that every cash transaction is tracked digitally means that you are protecting the consumer if the cash or transaction are lost. There is always the question – how can you service your customers post-payment without proof on your side? Ensure that your cash transactions are audited and accounted for to ensure you can recon accurately.

3. Don’t be a target

High collection points – those points where a lot of cash is collected and held – tend to become targets. Try to avoid putting your business in line of sight by using tools that can either limit the use of high collection points or that can alert the relevant security authorities if a theft occurs. Again, it comes down to digital tools to monitor, track and alert the right people at the right time.

4. Teach your customers

It’s one thing to invest into a bevy of tools and services to protect your transactions and consumers, another to let consumers make any number of silly mistakes. Teach your customers about fraud, potential risks, things to look out for and trust. They shouldn’t hand over their cash without the collector using the right tools or app and should be wary of any transaction that doesn’t have these protections built in.

Related: Improve Your Cash Flow: Manage Your VAT

5. Test and adapt

Invariably, those who want to commit fraud are equally committed to doing so. They will find loopholes and gaps that allow them to take advantage of you and your customers. Your best bet is to constantly test and adapt your systems, to build metrics in-house that measure inconsistencies and report back on any issues.

People are very creative and will find a way of helping themselves to cash that isn’t theirs.

6. Negotiate

Cash is expensive to manage so find ways of negotiating better deals with banks so you get the best fees. Cash-in-transit is expensive, but often necessary when it comes to large cash deposits.

7. Invest in a payment solution

Digital payment solutions aren’t always possible, but try to employ one that is easy to use and that can be gradually introduced to your customers. Adoption may be slow – it can take years to achieve low cash/high digital payments – but it will benefit you and your business in the long term.

Beginning his career in 1997, entrepreneur and IT specialist Chris Ogden has built successful software development house, RubiBlue from scratch, and has been Raizcorp’s most profitable business for two years running. From strategic manager to software developer, Chris’ business mind and experience allows him and his team to take real-world problems, and design solutions that deliver value. It’s his dynamic approach which allows him to take existing software to other markets and extend growth without having to build new systems. Having been thrown in the deep end when his business partner passed away, Chris’ entrepreneurial skills had to take off and led him to take the lead at RubiBlue. Chris’ role of managing director has seen him focus more on the development of the company, its operational management, market understanding to enable the delivery of real solutions which are innovative and add value.

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Cash Flow

5 Cash Management Tactics Small Businesses Use To Become Bigger Businesses

Reaching your highest potential as a business owner depends on maintaining positive cash flow.

Lisa Stevens

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You may have heard the phrase “Cash flow is the blood that keeps a business alive.” This couldn’t be truer, as consistent positive cash flow can help a business owner pay expenses, invest in new opportunities or grow a business.

Fortunately, as small-business-owner optimism remains high, most owners expect a healthy cash flow this year. The January 2018 Wells Fargo/Gallup Small Business Index found 77 percent of small-business owners rated their company’s cash flow as very good or somewhat good over the past 12 months, up from 73 percent in November 2017.

To help with managing cash flow, here are five tips you should consider:

1. Spread out your payments

Paying all your business bills at the same time rather than spreading them out can drain your disposable income and leave you at risk of not being able to pay your creditors and suppliers if an unexpected expense occurs.

Instead, try paying your bills closer to the due dates and negotiate with your vendors to see if you can extend your payables to 60 or 90 days.

Also, be sure to pay your most important bills, such as rent and payroll, before paying less important bills.

Related: 8 Ways to Avoid Cash Flow Surprises That Could Kill Your Business

Check with your vendor to see if you can receive discounts for paying any bills early. Remember to pay all your bills before the due date to maintain a good credit standing.

2. Collect payments quickly

Another way to improve cash flow is to incentivise customers to pay early by offering discounts.

Other techniques for collecting payments quickly include requiring deposits from your customers when taking orders and offering online payment options.

Thanks to advancements in technology, there are multiple ways for your customers to complete quick and efficient transactions with your business. One example is electronic billing, which allows for you to customize invoices and set up automatic payment reminders for customers.

credit-policy3. Establish a strict credit policy

It’s important to be wise about extending credit as a business. A non-paying customer can be a hefty expense to a small-business owner.

Establish a written set of standards for determining who is eligible for credit, and enforce those standards rigidly.

Also, be sure to require a credit check for all new customers before extending credit and monitor your accounts to identify late payers early so you can offer them a variety of payment options. These options might include a credit card charge or a payment plan.

4. Align your payroll cycle with your revenue stream

Some businesses, such as restaurants and retailers, generate daily revenue and can more easily cover the expense needed for weekly payroll.

Related: 5 Marketing Missteps That Make Cash Flow And Business Growth Stumble

For others, such as manufacturers, this could be a challenge, and you may benefit from paying employees less frequently, provided applicable wage laws allow you to do so. Refer to your state Department of Labor for pay frequency information.

5. Plan ahead for cash shortages

Expect the unexpected. Typically cash flow will vary, and unexpected expenses will occur even for established businesses.

Keeping a rainy day fund with three to six months of basic operating expenses in a reserve can prepare you for slow periods and emergencies.

Another option is to use a business credit card or business line of credit to pay for everyday expenses and help bridge gaps in cash flow.  Be sure to monitor your expenses with online banking and monthly statements.

Related: How Amazon Is Keeping It Lean

One important tool for planning ahead is a cash flow forecast, usually a one-year prediction of how cash will move in and out of the business. This helps business owners evaluate how profitable future sales will be, and provides an overview of what needs to be done to reach your goals.

In its simplest form, a cash flow forecast should show where cash balances will be at certain points in the future so you can anticipate and prevent cash shortages. To get started, organize your payables and receivables on a spreadsheet to see where money is coming and going.

Ultimately, reaching your highest potential as a business owner and being able to serve your customers effectively depends on maintaining positive cash flow. Following the tips above may help keep your business financially strong and position your company for success.

This article was originally posted here on Entrepreneur.com.

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Cash Flow

Why Cash Flow Is King But Margin is King Kong

Why you should shift your attention from cash flow to creating — and maintaining — strong margins for long-term growth and success.

Allon Raiz

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Conventional business wisdom states that turnover is vanity, profit is sanity, and cash flow is reality. And while this is true (very true), the focus on cash flow can become a distraction to what, in my opinion, is a more important focus. I see cashflow issues as symptomatic of other, hidden elements of running a business properly. The most important lever of all is the creation of margin (gross profits) in your business.

Here are five pointers to consider.

1. Chasing cash flow can be a distraction

The underlying driver for creating margin is creating defendable, distinguishable value for a client. When you create defendable, distinguishable value, it translates into the ability to charge more for your products and services since, by definition, there are lower competitive forces at play along with a higher perceived value.

Higher margins translate into higher net profits and this, over time, goes a long way towards reducing the effects of bad cash flow management.

Related: Strategies To Help You Stay Out Of The Red With Cash Flow

2. Create cash flow systems

When analysing the thousands of businesses to which I have been exposed over the last 18 years, I have seen that the majority of those experiencing cash flow problems have weak to non-existent cash flow systems. A few important systems and approaches can make all the difference in managing your cash flow better, and will give you more time to focus on creating defendable, distinguishable value.

These systems include: Budgets (that are used); creditors’ policies (that are implemented); a tough creditors’ clerk (who has no problem hunting down cash); and nurturing strong relationships with clients (in particular, with their accounts departments).

3. Margin increases resilience

Not only does margin create a cushion of cash that can be used to smooth over delinquent payers, but it also allows for a mindset of freedom to provide additional cost-bearing value-add to clients in emergency situations that require it, without any anxiety as to the overall profitability of the deal. This almost always leads to improved client relationships.

Related: Cash Flow Tips For Small Businesses To Survive Rocky Times

4. Margin increases the depth of core competencies

Some of the profitability generated by increased margin should, in my opinion, be channelled into deepening the core competencies of the business.

Deeper core competencies reinforce the company’s defendable, distinguishable value-add which creates more cash — a virtuous cycle. This cycle needs to be jealously maintained and guarded.

5. Margin keeps the client at the centre of attention

When you focus exclusively on cash flow, you are — to all intents and purposes — focusing on yourself. Your energy is concentrated on insuring that you have sufficient funds to maintain the operations of your business. When your priority is margin, your client becomes the centre of your business existence.

Your focus moves to their needs and solving their problems. This ensures longer-term, more profitable and stronger relationships with your clients. The result — given that proper cash flow systems are in place — is a business that does not experience cash flow issues.

The problem with conventional pieces of business wisdom is that they sound plausible and contain just enough truth for you to make them guidelines in your business. Perhaps a deeper analysis of their true wisdom, and whether or not they are masking a cause or effect, will result in you adopting practices that are more valuable to your business in the long run.

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Cash Flow

The Next 5 Steps To Take After You’ve Been Denied A Small Business Loan

First things first: Ask the lender exactly why you were denied. Then, try, try again.

Entrepreneur

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Let’s say you put together a business plan. You did the math to figure out exactly what you needed. You researched your small business loan options, diligently completed the paperwork and even did your little “good luck” dance as you clicked the “submit” button on your application. But then, your worst fears came true: You were denied that small business loan.

Let’s face it: There’s almost nothing quite as discouraging for an entrepreneur as seeing your business dreams halted by the decision of a single lender. You might feel rejected, have no idea what to do next and even start to question whether your grand business plans were ever meant to come true in the first place. But here’s the good news:

Of the many entrepreneurs who are denied a small business loan after their first application, most do go on successfully obtain financing with later applications. The key is to figure out why your application was denied, take steps to improve your credit and financial standing and choose the right loan product for your business – before trying again.

Don’t let a single denial hold you back from pursuing your small business goals! Here are the five steps you can take right now to ensure that your next business loan application results in a resounding yes.

Related: Is Venture Capital Right For You?

1. Request an explanation from the lender

Once a loan officer has given your application that red stamp of denial, you’re not likely to change his or her mind. Most lenders, however, will be willing to provide a letter of explanation detailing the reasons that your business loan application did not meet their requirements.

Understanding why you’ve been denied a small business loan will be critical as you seek to successfully re-apply in the future – and the answer might not be as obvious as you may think. A letter of explanation from your lender will allow you to address those specific concerns before seeking funding again in the future.

2. Check your business and personal credit reports

If you’ve ever bought a house or a car, or even applied for an apartment lease, you’re likely very familiar with your personal credit score and the impact it can have on your access to financing. But did you know that as a small business owner, that personal credit score also weighs heavily on your access to a small business loan?

That’s why, upon being denied a small business loan, one of your first steps should be to check your personal credit report and score for any discrepancies or forgotten financial woes that may have contributed to the denial.

Be sure to check your credit report with all three major reporting agencies – ExperianEquifax and TransUnion – as different bureaus may receive and report different information about your credit history. Should you find any errors on your credit report, reach out to the agency, in writing, to have the information corrected immediately. You don’t want an error to impact your ability to get a loan.

Along with your personal credit, your business also has its own credit report and score, which factors into lenders’ criteria. For most small businesses, however, the challenge of business-credit reporting most often stems from a lack of credit – particularly if your business is relatively new or you’ve never sought a loan before.

Work to build up your business credit by asking vendors, creditors or even the landlord of your retail property or office space to report your payment history to major business credit reporting services, including Experian, Dun & Bradstreet and Equifax.

3. Take steps to improve your business’s financial standing

business-financial-managementWhile your business and personal credit scores will typically be the most influential factors in a lender’s decision process, the internal financials of your business – particularly the strength of your annual revenue, cash flow and business savings – will also be considered.

Taking an objective look at these factors from your lender’s point of view may help you to determine what steps you can take to either improve your financial standing or choose a loan product that will be a better fit.

The best way to do this? Take a look at what’s called your debt service coverage ratioor DSCR, for shortThis simple formula is the tool that lenders use to determine whether your business has the necessary cash flow to make your loan payments consistently and on time.

Related: 6 Money Management Tips For First-Time Entrepreneurs

Don’t know what a DSCR is? Here’s the basic formula you’ll need to calculate your debt-service coverage ratio, including your anticipated loan as part of your calculations:

Annual net operating income + depreciation and other non-cash charges

Divided by interest + current maturities of long-term debt

A debt service of less than 1 indicates that your business’s debt will exceed available cash flow, meaning your loan will surely be denied. Most lenders look for a higher DSCR – at least 1.25 – with a ratio of 1.5 or even higher being ideal.

Even if you’ve been denied a small business loan because of a low DSCR, you may not be able to quickly increase revenue or reduce expenses in order to re-apply.

If this is the case, consider seeking a lower amount of funding – at least at the start – in order to increase your chance of approval until you can build up your business’s financial standing.

4. Consider alternative loan products

We can’t say this enough: A denial from one lender on one loan application is not  a “no” for all time. Variations between lenders’ standards, the requirements different loan products have and the amount and terms of your financing can often mean that even without making major changes to your credit or your business finances, you may still be able to obtain a small business loan relatively quickly if you explore your options.

5. Apply carefully the second time

Beyond the challenges of bad credit or your choice of the wrong business-loan product, there are simple mistakes or oversights on the business loan application that could be the reason you were denied.

Did you have all of the right documents? Did you triple-check your identifying information and every other aspect of the application form for accuracy? Did your balance sheet and profit and loss statements match the business bank statements and tax documents that you provided?

This is the time to get a second set of eyes on everything that you submit so that you don’t risk a second round of frustration.

Being denied a small business loan is a reality that many business owners face, particularly after their first application – but it is by no means the end of your business financing journey.

Allow yourself to overcome your frustration; then follow these steps to dig right back in, solve what problems you can and find the funding your business needs.

This article was originally posted here on Entrepreneur.com.

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