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

Be aware of common cash flow problems and have a plan in place to address them when needed.

John Rampton

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If you don’t think that cash flow is important, then ask the nine out of 10 small business owners whose businesses failed due to poor cash flow just how important it is.

Good cash flow management begins with having a clear understanding on where cash enters and exits your business. It also involves keeping an eye on the long-term so that you’re not surprised by any cash flow problems, such as the following surprises.

Besides being aware of any surprises, you also need to have a plan to avoid and handle them in the first place.

1. Lack of profitability

Did you know that only 40 percent of businesses are profitable? Even worse? 30 percent break even while another 30 percent continually lose money.

While a lack of profit is one of the main reasons why a business fails, some business owners believe that just because they’re currently turning a profit means that they don’t have any cash flow problems. The truth is that profitable businesses of all sizes and stages can run into cash flow problems, which will ultimately force them to close their doors for good – especially when you have high business expenses and constantly reinvesting profits back into your business.

Remember, you’re only profitable after there’s revenue in your bank account and you’re paid all of your expenses.

How to avoid lack of profitablyBe on the lookout for profit-making opportunities like product markups, becoming a consultant, adding new products or services, offering freebies or discounts and constantly learning new skills.

Related: The Correlation Between Cash Flow Challenges And Risk

2. Late payments

In a perfect world a client would pay his or her invoice on-time. Unfortunately, that’s not a reality. That becomes a cash flow problem when you’re banking on that income before you even received the payment. In fact, small businesses are now waiting an average of 72 days for payment of invoices. And, that can put your business in jeopardy since that means you can’t pay your bills on-time.

How to avoid late payments: Brush-up on the best practices for billing. This includes using cloud-based invoicing software, requiring a down payment, accepting multiple forms of payments, following-up with clients who haven’t paid on-time and having a plan for clients who refuse to pay the invoice.

3. The unexpected

Let’s not sugarcoat this. There will be unexpected and unanticipated costs that you’ll have to tackle. It could be anything from a key piece of equipment breaking down, a natural disaster damaging your office, responding to a negative customer complaints, having to change your business model, or losing one of your top employees. All of these can definitely impact your cash flow almost instantly.

How to avoid the unexpectedIt’s impossible to predict each and every possible outcome. The best thing that you can do is take as many preventive measures as possible. For example, creating a cash flow forecast for the the next six to 12 months gives you the chance to build an emergency fund so that you can handle most of these unexpected scenarios. Other steps you could take would be to have insurance, provide amazing customer service and retain your top-performers.

4. Seasonality

For some businesses this is obvious. For example, if you’re a landscaper in the Northeast, then you can bet that once winter hits you’re not going to have a whole lot of customers contacting you. Sometimes there are seasonal fluctuations that you may not anticipate. For instance, if you’re a year-long nursery and your biggest sellers are Christmas trees, then you may run into cash problems throughout the rest of the year.

How to avoid seasonality fluctuations: The above-mentioned cash flow forecast not only could clue you in on seasonal fluctuations, it can also help you set aside enough money to pay your bills when business has dried-up. You can also diversity your business your business so that there’s consistent cash flow. A landscaper could provide a snow removal service during the winter.

Related: 10 Expert Tips On Managing Cash Flow As A New Business

5. Taxes

business-taxes

It doesn’t matter if you’re a monthly, quarterly or annual filer, it’s your responsibility to file the appropriate amount of taxes you owe on-time. Remember, if you don’t filed your taxes or make an error, you could be subject to to penalties, interest payments and even an audit from the IRS.

How to avoid tax problems: Mark on a calendar your tax deadlines and speak with a tax specialist. They can make sure that your taxes are in-order and can also help you find deductions. Also make sure that you have enough money set aside to pay your taxes. Although it may not be the exact dollar amount, you can look at last year’s taxes to at least get a ballpark figure.

6. Withheld funds

Investors and banks can withhold funds if your business hasn’t been able to meet expectations or your incomings are less than what was expected. This becomes a cash flow surprise when you go to secure a loan for a broken piece of equipment only to be turned down because you’re a risk.

How to avoid withheld funds: When you initially request a loan, ask for a little more, like around 25 percent, as well as a line of credit. This should help you cover any emergencies without having to ask for more money.

7. Unanticipated growth

While growth is a definitely a goal, unanticipated growth can catch you off-guard. Remember, the more you business grows the more cash you need to pay for staff, a larger property, and more products and services. Those are all expenses that can’t wait until you have more cash flow.

How to avoid unanticipated growth issues: Implementing a business system in advance gives you the chance to test out the systems that work best for your business. For example, finding invoicing software that has features like recurring billing and sending automatic payment reminders removes those time-consuming administrative tasks. Now that you’re free from those tasks, you can focus on tasks like generating more revenue to handle this rapid growth.

Related: Do This to Improve Your Cash Flow

8. Hidden costs

No matter how prepared you are there are bound to be some hidden costs that slip through the cracks. It could be employee turnover, taxes, legal and accounting fees, repairs and replacements, permits and licenses, insurance, shrinkage, credit card/loan interest and utilities. Some of these may seem insignificant at first, but they can quickly add-up until they make a dent into your cash flow.

How to avoid hidden costs: You can’t completely avoid these hidden costs. However, I would find a mentor or fellow business owner and discuss the hidden costs that they’ve experienced. I would also sit down and create budget so that you’re aware of all of your expenses you have each month and then plan accordingly.

This article was originally posted here on Entrepreneur.com.

John Rampton is an entrepreneur, investor, online marketing guru and startup enthusiast. He is founder of the online invoicing company Due. John is best known as an entrepreneur and connector. He was recently named #2 on Top 50 Online Influencers in the World by Entrepreneur Magazine and has been one of the Top 10 Most Influential PPC Experts in the World for the past three years. He currently advises several companies in the San Francisco Bay area.

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Cash Flow

The Simple Way To Pay Wages When Your Staff Don’t Have Bank Accounts

If you have employed casual workers over the busy season, you can pay wages even if they do not have bank accounts.

Absa

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At Absa Business Banking, the things that are important to you are just as important to us. We understand your business needs, which is why we have developed tailored solutions to help you where it counts. Take CashSend Plus, for example. It is a payment solution that enables you to pay workers even if they do not have bank accounts.

Related: Hiring Your First Employee? 5 Things You Need To Know

It is safe and secure

Your employee will receive a six-digit access code and a ten-digit reference number, so that they can verify the transaction. The money is instantly available at an Absa ATM.

You can even pay yourself

We have all lost bank cards or wallets at some point in our lives. What an inconvenience. Well, it is good to know then that you can access cash by sending it to yourself. Now, that is what we call better. 

Related: How Salary Transparency Empowers Employees – And When Not To Use It

Interested?

Please speak to one of our consultants or call 0860 111 123 or visit your nearest branch.

Absa Business Banking 

Do better business. Prosper.

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Cash Flow

Entrepreneurial Balancing Acts with Debt

Young South African entrepreneurs face many challenges when it comes to debt-related financing. Small and medium enterprise (SME) owners typically require extensive debt financing from bank and non-bank lenders.

Harald Merckel

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Young South African entrepreneurs face many challenges when it comes to debt-related financing. Small and medium enterprise (SME) owners typically require extensive debt financing from bank and non-bank lenders. Unfortunately, many South African entrepreneurs are limited in their ability to access capital markets. Among others, the major challenges facing entrepreneurs include lack of credit history, no collateral, shaky credentials, and unformulated business plans.

Regardless, SA entrepreneurs are forging ahead and using multiple resources at their disposal such as payday loan providers, non-bank lenders, family and friends, crowdfunding and other economic empowerment initiatives to raise the necessary seed capital for investment purposes. Given the staggering unemployment rate in the country (+25%), the only way out for many people appears to be entrepreneurship. The 2008 global financial crisis threw the economy for a loop, and now the hopes and dreams of many South Africans hang in the balance.

Related: Every Tough Choice Has Management Debt – Are You Accounting For Yours?

ISM Study Sheds Light on SA Entrepreneurial Pros and Cons

An intensive study conducted by the University of Cape Town’s Unilever Institute of Strategic Marketing (ISM) found that the country is experiencing ‘a crisis of aspiration’. Simply put, many South Africans are struggling to attain their career objectives in an economy that has been ravaged by corruption, mismanagement, and scandal. Despite tough economic times, South African entrepreneurs are determined to try their luck. Pressing challenges in the form of rising unemployment, and an economy mired in failure are challenging entrepreneurs to be more inventive than ever before. The most volatile component of the economic spectrum in South Africa is the middle class.

Many South African families have lived the high life, or ascended the rungs and then been knocked down a peg. This instability is creating added volatility in a country where high crime, mismanagement and political rancour pepper the scene. For many entrepreneurs, any access to credit is a godsend. Banks and non-bank providers offering personal loans, business loans, or credit card funds invariably expose themselves to debt default. For entrepreneurs, it’s important to know where to draw the line. Access to lines of credit in a crippled economy is significantly more valuable than the equivalent access in a developed economy.

How to Know when you are Overstretched as an Entrepreneur

Debt is considered a prerequisite for investment purposes. Most South Africans simply don’t have the necessary capital to start up a high-tech venture, fund a new business, or conduct marketing and advertising activity. As such, lines of credit are increasingly being used to propel business activity among SMEs – both in the formal and the informal sector. However, once debt reaches untenable levels, the tough questions need to be asked. For example, if multiple loans and multiple payments are required monthly, revenue streams need to be evaluated against expenses to gauge whether this is a feasible status quo.

Related: How To Handle Your Post-Holiday Debt

Many entrepreneurs find it difficult to manage multiple loans simultaneously, although it is necessary to acquire the capital from multiple sources. One of the ways to deal with these types of exigencies is a single loan from a low-cost lender in the form of debt consolidation loans. Simply put, these loans are provided by bank or non-bank lenders at lower interest rates than the prevailing interest rate on other lines of credit. By taking out a debt consolidation loan, the entrepreneur has more disposable income over time by not paying the higher interest on credit card debt.

Escape Debt Before Debt Consumes You

There are several other ways to know when your personal financial situation has reached critical mass. For starters, the nature of your business may require you to continue dipping into lines of credit to maintain business operations. If you don’t have the requisite discipline to stop indebting yourself, you may not be able to get out of debt. Debt consolidation is only effective insofar as you have the necessary discipline to put an end to debt financing of all business-related activity.

Credit should be used sparingly, and profits should be generated to allow your business to prosper. In a tight economic climate, costs are the bugbear that need to be attacked. Lavish trappings are unnecessary for business functionality – modest budgets, and high-quality goods and services are far more effective than window dressing at a premium.

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Cash Flow

How South Africa’s Small Businesses Plan To Invest Their Money In 2018

Here are their five areas they should focus their attention on in the next year and beyond.

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Despite economic uncertainty, South Africa’s small businesses are positive about the future. In fact, our State of South African Small Business report reveals that 40% of small businesses are expecting to grow. However, to achieve growth without overextending their limited resources, small businesses need to invest wisely.

Here are their five areas they should focus their attention on in the next year and beyond.

Marketing

When times are tight, companies typically reduce their marketing spend. This isn’t the case for 36% of South Africa’s small businesses. These respondents recognise marketing as a critical investment area.

They’d rather make a concerted effort to grow their customer base, than sit still and do nothing as consumer demand declines.

Related: What To Consider When Investing Your (Hard-Earned) Money

Technology

Without access to the latest technology, business growth can quickly stagnate. This is why 23% of South Africa’s small businesses plan to invest in up to date equipment, whether that be new machinery, mobile devices or computers.

The right investment in this area can give a business a real competitive advantage.

It can help boost profits and improve operational efficiency – both of which can help a small business withstand difficult economic conditions with greater success.

Product development

Consumers are spoiled for choice. Their needs are constantly changing and companies can’t afford to become complacent. To keep up with market demands, 22% of small businesses plan to invest in product development. Barring a few timeless classics, most products need a regular review and tweak to stay relevant and popular.

Technology

technology-south-africa

Digitisation is transforming business functions across the board. Technologies, like cloud software can take care of laborious administrative work.

Related: How To Make Money Investing, According To Ashton Kutcher

This liberates employees from time-consuming tasks, enabling them to focus on more strategic work like customer retention and acquisition.

Technology has the power to improve productivity and efficiency. Which is why 18% of small businesses are going to focus their investment plans on this area of their businesses.

Customer service

The customer should always be the priority. It doesn’t matter how good a product is, if there are no customers, then there’s no business. As competition increases, the user experience becomes more and more important to win over customers.

Business growth depends on happy customers and to achieve that, 18% of small businesses plan to invest in delivering better service.

All five of the above business areas are worthy investment focuses. The question is, how does a small business work out what to invest where? The only way it can invest effectively is with a full view of its company finances. A small business needs to be able to see which functions have provided the best return on investment to date.

Related: 12 Millionaire Habits To Start Making Serious Money Soon And Build Wealth In A Hurry

It also needs to consider how much investment capital it has to spend. What’s more, before it makes an investment in say, marketing or product development, it must know exactly how and where the money needs to go.

The right software can help a small business access the real-time insights it needs to make better, faster financial decisions. To combat increased competition and market uncertainty, South Africa’s small business owners need access to up-to-the minute information from any device no matter where they are. An informed investment has the greatest chance of success.

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