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Cash Flow Tips For Small Businesses To Survive Rocky Times

Staying afloat when cash is tight in your business.

Darlene Menzies

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The bad news in the SME market in 2016 was that 67% of small businesses that closed in South Africa did so for financial reasons. This is a far more pressing problem for local entrepreneurs compared to their regional counterparts, with 50% more South African entrepreneurs discontinuing their businesses due to a lack of access to finance compared to the average for Africa. With this and the reality of SA having entered an economic downturn in June, it’s not hard to feel a bit bleak.

Darlene Menzies, CEO of Finfind, South Africa’s leading online access to finance solution, shares a few finance tips on optimizing your cash flow management to help ensure that your business survives and thrives during rocky times.

Ask for a deposit from your customers

One of the easiest ways of ensuring that you can cover the cost of doing the work for a customer is to ask them for a deposit before you start the work.

This is common business practice so don’t be afraid to try it. It’s acceptable to ask for up to 50% of the total cost as a deposit with the balance being paid at agreed delivered milestones or on final completion of the work.

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

Offer discounts for early payments by customers

Offering your customers a discount for paying earlier than the standard 30 day terms can help bridge your cash flow gaps as well as reduce the risk of late payments.

When cash is tight it makes sense to get slightly less money in immediately than to wait to get the full amount later. As a gauge, you can offer between 2.5% to 5% discount on payments received within 7 days from date of invoice.

Ask suppliers for better payment terms

Having extra time to pay suppliers can make a big difference to your cash flow – imagine paying 45, 60 or even 90 days from date of invoice instead of 30 days. If you have established a good payment history with your suppliers in months past and they see you as a valued customer then you should be able to negotiate better terms. It never hurts to ask!

Apply for accounts instead of paying cash

Many entrepreneurs pay cash for services they may be able to get on account – for example stationery, courier services, IT services or maybe car rental costs, if you do business travel. Paying for things monthly instead of using immediate cash helps with your liquidity and with cash flow planning.

Some entrepreneurs use pay-as-you go for their airtime and data purchases for their business – it’s worth investigating whether paying monthly for a contract works out cheaper.

If you’re a new business or don’t have a good trading history it may be better to apply for your contract in your personal capacity.

Barter services

One way to get the services you need in your business without having to outlay hard cash is to swap services with other businesses. For example, if you provide accounting services you could offer to do the books for a small IT business in exchange for them helping you with your IT needs.

This kind of arrangement not only helps with cash flow but can also be a mutually beneficial way of gaining new customers if you both agree to refer each other’s services.

Related: 4 Implementable Ways You Can Manage Your Cashflow For Your Small Business

Credit cards

When you’re in a cash jam an easy way to fund urgent business purchases is using a credit card, either your personal or business card. The upside of using a credit card is that you only have to make small monthly repayments but the downside is the additional interest rates charged if you don’t pay it off quickly.

Apply for an overdraft facility

Banks offer overdraft facilities on your personal and business accounts. Getting an overdraft approved means that the bank allows you to continue withdrawing money from your account when you balance is zero. Apply for an overdraft even if you don’t currently need it as it could be a lifeline if you suddenly find yourself in a tight position cash flow wise.

Some banks now charge a small monthly fee for these facilities even if you don’t use them, but this is a small price to pay for the convenience of being able to meet unexpected financial challenges.

Get a loan for outstanding invoices

There are lenders who will give you money while waiting for customers to pay your invoices. This is a good option if your cash crunch is caused by customers who take a long time to pay.

These lenders typically only consider lending if your customer is a corporate or Blue Chip company and of course the work has to be completed and invoiced. In this type of finance the lender looks at your customer’s credit history and ability to pay in deciding whether to approve the finance.

On average you can raise between 75% and 80% of the value of the invoice within a day or two of sending the invoice to your customer. There is usually an administrative fee to be paid plus interest on the loan – it can be an expensive way of getting finance but it is better than waiting 90 or 120 days for your customer to pay you if you have cash flow constraints.

As a small business owner you will know how true the old adage is that says ‘revenue is vanity, profit is sanity but cash flow is reality’. Month end comes around fast and they can be scary times – managing your cash flow well is not only critical to your business’s survival and growth but can also help to give you better peace of mind.

Darlene is a tech innovator and serial entrepreneur. She is the founder of the award winning online accounting software SMEasy as well as Finfind, an online access to finance solution for entrepreneurs recently launched by the Minister of Small Business Development. Darlene won SA Innovation Entrepreneur of the Year Award in 2010 and has also been recognised by Swiss-based Stars Group as a future Global Leader. Darlene believes that technology should play a leading role in the fight against poverty in Africa. She has been invited to speak in Zurich and London on harnessing technology for Social Change. Darlene works alongside Government, Business and Civil Society to address youth unemployment and to develop small businesses in South Africa. Her life motto is “to live an extraordinary life you must resist an ordinary approach”.

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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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