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Cash Flow

Getting the Basics Right

From start-up to success requires good financial management and a strong focus on cash flow.

Nadine Todd

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As a start-up business, chances are your cash flow is tight and you haven’t managed to secure financing. Don’t worry, you’re not alone. In fact, these are the biggest challenges most start-ups face: how do I manage my cash flow and get customers to pay on time? And how do I access funding?

The reality is that most banks will not lend to a start-up within its first three years — the risk is simply too high. This is hardly unique to South Africa, but rather a global phenomenon. That said, Clive Pintusewitz, director: small enterprise and enterprise development at Standard Bank, admits that there is more that banks can do to assist the start-up market.
“It’s a delicate balance,” he says. “On the one hand, many start-ups simply do not have the financial acumen to manage their finances well enough to mitigate the risk banks take lending them money. On the other hand, I firmly believe there is more that we can do to facilitate lending to start-ups and SMEs.”

In order to close this gap however, it is essential for start-ups to improve their financial management skills. Forecasting and cash flow are essential. If a business owner can prove their model will work, and show they have an intimate knowledge and understanding of their business and its finances, they immediately reduce the risk of lending them money.

Mitigating business risk

“Every business will have cash flow gaps in its first 12 months,” says Pintusewitz. “This is inevitable. However, it is possible to forecast where those gaps will be. If a business owner does that, the business loan is still risky, but it’s predictable. Often we are only approached after problems have manifested themselves, which is an immediate red flag for us. The fact that the gaps occurred isn’t the issue, but rather that the business owner did not have enough of a handle on events to predict the gap earlier and therefore make provision for it.” (See case study on page 69 for an example of cash flow forecasting).

Accurately forecasting cash flow issues is not only useful for securing finance however. Good business and financial management will ultimately lead to growth — whether or not the business secures finance.
Pintusewitz offers ten key areas that start-ups should focus on for healthy cash flow.

  • Don’t spend ahead of revenue

”This sounds obvious but we see businesses doing all sorts of things. For example, start-ups often believe that they need to create a professional image, and so they take 200 metres of A-grade space in Sandton, get locked into a two year lease, and then aren’t able to pay their rent because the contracts haven’t flown in as expected. It’s a death knell for a start-up. Flexibility is vital.“

  • Get your revenue in and bank it

There is no substitute for this. Manage your debtors from the first contract you get. Make sure your clients pay you properly.

  • It’s about control

“We always say retail is detail, but this is true of any business – you need to know exactly what is happening in your business: your stock; your staff; money in the bank and money owed you; who you owe; what you will gain by paying your suppliers at different times etc.”

  • Understand your market

What are your risks? In other words, do you stock perishable goods? Is your business power hungry? What happens if the lights go out? Do you rely on trends? You need to know your market to manage your business properly.

  • Check your finances regularly

How can you coincide when you are paid and when you pay? The closer you can get those two working together, the better off you will be, and the more positive your cash flow.

  • Understand gross versus net profit. You get goods, you mark them up, but you don’t take all your own costs into account, and by the time you have taken everything into account, you are actually losing money.
  • Don’t rely on a few big contracts

If one of those contracts doesn’t pay you on time, can you survive? It might be more prudent to turn down a big contract in favour of a few, less lucrative contracts. It might be a
R1 million opportunity, but what happens if they can’t pay? Perhaps you should rather only take R200 000 of the contract, and spread your risk across other smaller contracts. Very few entrepreneurs manage this well — they see the bright lights and go for it, without managing the risk.

  • Do due diligence on potential clients

Don’t just take a business at face value. Investigate its credit record through a bureau like Experian or Transunion, and speak to other clients to find out what they are like to work with, and whether they pay on time. A bad client can kill a start-up.

  • Don’t overtrade

Many start-ups grow faster than their cash flow can support. Your profit is going up, but profitability is going down because your expenses are higher than revenue. Before you make the decision to invest in growth make sure the resultant revenue is greater than the costs. If it isn’t, wait.

  • Make sure you see the full picture

You do need to grow, but understand how the growth will affect you — and then you will be able to grow at the appropriate times. Don’t assume that the revenue generated from growth will cover the additional costs.
It’s important to understand risks and make educated decisions. Cash flow is vital to a start-up’s survival, and healthy cash flow can only be achieved through an intimate understanding of your business and your market. n

Case Study
Positive Cash Flow

Pizzaz is a small owner-run events management company. The company enjoys relatively steady business throughout the year, although November and December are busy months, and January is quiet. On average, they collect 50% of their revenue in the month of the event, 30% the month after, and the balance two months after the event.

Revenue in September was R120 000, October R110 000, November R150 000, December R250 000 and January R50 000.
The cost of materials and décor for events is 40% of the amount charged and paid on the day of each event, monthly rent costs R5 000, cell phone bills R3 800, and salaries R85 000. 10% bonuses are paid in December.
Because January is such a quiet month, the owners use the time to upskill their employees and send them on training courses. This is projected to cost R15 000.
Here is a brief example of their cash flow projections in the months November through January. They had R25 000 in the bank at the beginning of November.*

By the end of January, Pizzaz’s cash flow is in the negative. With adequate planning and risk management, the situation can be controlled and planned for.

Tools

Starting right

Standard Bank launched BizLaunch in April. Through this innovative new product, the bank is extending a strong hand of support to start-up businesses with a package that will help ensure the correct basics are in place from the word go, reducing the potential rate of failure.

BizLaunch offers the critical things businesses need to get started:

  • A R90 per month (R3 per day) business account, which allows holders unlimited electronic transactions, unlimited debit orders, unlimited cheque card swipes, Internet banking, My Updates (SMS notifications); and eight ATM cash withdrawals. This excludes branch transactions.
  • My Business Online, an accounting package from Pastel, the market leader in accounting software.
  • Businesses have access to a Business Banker to discuss and meet their needs.
  • Free packaged business support and tips on how to start and grow a business.

Why we love it

As a one-stop shop, full-service offering that includes a very affordable business account with no hidden costs; an accounting solution; an affordable insurance offer, and access to expert advice and other support, BizLaunch is a proactive product that assists start-ups to lay the right foundations for business success. The tool aims to give entrepreneurs a sense of the financial position of their business.
While the bank acknowledges that there are no silver bullets when it comes to starting a business, but that it takes hard work and persistence to succeed, Bizlaunch offers relevant practical solutions.

Go to bizconnect.standardbank.co.za for more information.

Nadine Todd is the Managing Editor of Entrepreneur Magazine, the How-To guide for growing businesses. Find her on Google+.

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Cash Flow

18 Ways I’ve Earned Rent Money When I Was Broke

Nothing motivates your hustle more than the prospect of an eviction notice.

John Rampton

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It’s an interesting world out there. In the past five years I’ve gone from being worth millions to being broke to being worth a millions again. There’s been more than one month where I didn’t have enough money to pay rent. There are times you need money, and need it quick.

With a more connected world, there are more opportunities to make money doing micro jobs and taking advantage of constantly evolving opportunities. Plus, globalisation has opened the door to add value for people well outside of your immediate proximity.

Here are 18 quick ways I’ve made money to pay rent when money is tight:

1. Teach a skill that you’ve mastered to others

If you are a talented musician, athlete or you have other desired skills, you could get paid to teach others. You could either become a freelance teacher or look for a service that helps match you with clients. This is an opportunity to make some serious money, improve your teaching ability and help others. Do not underestimate all of the time you spent as a kid playing the piano or learning to do backflips.

I’ve been able to scrounge up $100 teaching math to neighbourhood kids. This could turn into a longer gig as well.

Related: Which Side Hustle Should You Try? (Infographic)

2. Drive for Uber and/or Lyft

driving-uberThere are a few prerequisites you have to meet to become a driver. Assuming you are 21+, have been driving for three years, have a clean record and a nice enough car, though, you can make serious money driving for Uber or Lyft. You can be a driver for both at the same time, and can drive at whatever hours you want.

It took me about a week to be all setup to drive. So it’s not an overnight money situation, but it’s a quick way to make some money for bills. Most of the time money is deposited very quickly, often the same day.

3. Put a room in your house on Airbnb

There are inconveniences that come with being an Airbnb host, but it is quite easy to do so. As long as you have a room to spare in your house, you can rent it out for extra money. Plus, it could give you an opportunity to meet and connect with interesting people.

It took about three weeks for me to get set-up, actually host guests and see money in my bank account. It can happen faster but that’s about the timeframe it took me.

4. Build a social media brand

Social media is quickly becoming the world’s most powerful platform for generating revenue and reaching an audience. While the ecosystem is becoming more and more competitive, there are a number of tools you can leverage to stand out.

I’ve personally used this Instagram automation service to help me accelerate my growth quickly and gain new followers. It is important to invest in generating high quality content such that you develop loyalty among your fans before you begin to monetise.

I now can earn a few hundred bucks quickly by pushing brands out online.

Pro tip: Make sure to always disclose with #ad in the message.

Related: Are You Ready For A Side Hustle? Here’s How To Know

5. Go through your old things and sell them

You likely have books, clothes and other novelty items lying around that you no longer use. Spending a few days to go through those things and list them on Amazon, eBay or other sites to make some extra cash.

6. Pickup jobs on Fiverr

fiverr-logoThere are countless tasks on Fiverr that you can pick up. None by itself is a large amount of money but doing many tasks, though, can add up to a nice chunk of cash.

Money comes a few days after the task is completed. Most are cheaper tasks with demanding customers but can really start to add up. One month I paid all my bills from just working on Fiverr at $5 per gig that I did.

7. Dog walker/sitter

You can do this on a neighbourhood level or use a service to find clients. Walking or sitting for dogs tends is minimal effort for extra cash. Plus, if you like animals, what is better than getting paid to spend time with them?

I recommend starting small, say $1-2 per hour and working your way up once you have stable clients. It’s not much, but it can start to add up over time plus give you enough money to make bills.

8. Take advantage of credit card deals

There are countless credit card deals that are always popping up. Managing multiple cards is not the most fun, but it can yield you significant benefits. Be on the lookout for these deals. Some require that you spend a certain amount on the card within the first few months, and others have yearly fees. If the money that you are getting is greater than your costs, though, they can be a great use of time. Plus, if you are spending a certain amount of money anyway, you might as well do so on a card that will give you the maximum benefits in return.

Related: 3 Ways To Set Your Side Hustle Up For Success

9. Go thrift shopping and resell the best items

People turn in some awesome items to thrift stores. Going through the stores to find good deals is both fun and rewarding. You will likely find some items you can resell for a nice profit, and you might even find some cheap things to keep.

10. Proofread

proofreadingYou can get paid to proofread articles, books, and journals today. You have to be meticulous and able to stare at a screen for a while, but it is nice and relaxing money in return. Sites like Freelancer can help you find clients to do the proofreading for.

11. Do surveys and studies

Services like Mechanical Turk will pay you to take surveys, and there are always listings to get paid for participating in studies. The work can be a bit monotonous, but it is typically a mindless way to make money.

12. Keep your email receipts

You can make money today simply by not deleting receipts that come via email. Earny automatically scans your email for old receipts and matches what you paid to current prices. When there is something being sold for less money, now, they will help you get the difference back.

13. Take advantage of your data

There are services that will give you money just for offering access to your data. For example, Nielsen gives money away just by letting them install a software on your computer that tracks your habits. It might feel scary to give others access to this data, but in many cases, it will have zero impact on you.

Related: 50 Jobs, Gigs And Side Hustles You Can Do From Home

14. Make a bet to do something that will improve your life

If you have a goal you are trying to accomplish, make a bet with someone that you can do it.

This could be a great way to lose weight or pick up a new talent. It will incentivise you to actually do so, and you will be able to make some money for your efforts. Keep track of this in your calendar app.

15. Be a mystery shopper

You can get paid to pose as a regular customer for services like pizza delivery. Mystery shoppers are how companies test their customer service, and, in return, you can will get paid. You have to find the right deals, but doing so offers another effortless way to make money.

16. Become a search engine evaluator

You can make $12/hour evaluating search engine accuracy. Despite how good we think Google is, they still make mistakes and are willing to pay people to find them.

17. Sell your trash or recycling

empty-cans-recyclingThere are countless companies that will pay for your empty cans and sometimes even your trash. You are going to be creating the waste anyways, so why not take advantage of it?

18. Approach companies for consulting services

If you have a skill that you think you can help businesses with, then approach them about it. Many companies, even successful ones, struggle in a variety of different areas. If you know what you are doing and can demonstrate that, you could make some serious money helping a company out. This could especially be the case for companies that do not have enough money to hire more people full time but have enough to pay a one-time fee for a project or service. Hot topics today include SEO, digital marketing, and design.

Ready to take your making money to the next level? Here is a quick self employed guide to help you get started.

This article was originally posted here on Entrepreneur.com.

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Cash Flow

4 Scenarios When It Makes Good Sense To Take On Business Debt

Debt is often necessary to grow.

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You need to invest money into your business to make it grow. You need money to expand your workspace, buy more materials or equipment and to market your business.

Without an infusion of money, your business will remain stagnate. You might be able to grow a little bit, but you’ll never get big results.

If your business doesn’t bring in a large revenue that can be funneled back into the business, you’ll likely need some type of loan. The loan will give you a financial boost, and you can pay off the loan with increased revenue from business growth.

You shouldn’t automatically think of debt as a bad thing. Debt is often necessary to grow. But, there are good times and bad times to take on debt.

Here are four times taking on debt is beneficial to business growth.

1. You want to provide more products

If you want to offer new products or carry more inventory of current products, you need money to buy them. Getting a small business loan can give you enough money to provide more products.

When you carry more inventory, you need space to store and display it. You might use a storage unit, buy a second location, move to a larger location or maybe even add on. Small business debt can help you purchase more space.

Related: Entrepreneurial Balancing Acts with Debt

2. You want to increase your marketing efforts

radio-adsYou will only get more customers by getting the word out about your business. That’s why you need small business marketing.

Marketing doesn’t have to be expensive. You might create something as simple as flyers or do basic social media marketing. But, to reach more people, you might need more elaborate marketing tactics. You can invest in magazine ads, radio ads, billboards, pay-per-click ads and more. To achieve marketing success, you might need to consider taking out a small business loan. The extra cash will let you market your business well. You can pay off the loan with the increased revenue from the influx of new customers.

3. You want to build your credit score

You need good credit to get a loan. Plus, good credit can get you better payment terms with your vendors. But to get good credit, you need experience with taking on and paying off debt.

Taking out small loans can improve your business credit score. Small loans show that you are responsible and capable of handling debt. And when you make payments on time, your credit score increases.

Once you build up your credit and prove to lenders that you can handle debt, they will be more willing to give you larger loans. And, your score and timeliness might result in better loan terms, such as lower interest rates.

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

4. You want to hire employees

At some point, you might spend so much time on your business that it consumes your life. You might miss out on time with your family and friends. Or, you might have so much business stuff to do that you can’t get everything done.

Hiring an employee can help you grow your business. You can get more done and produce better quality work. You can hire employees who have special skills that will benefit your business.

Spending money on an employee is worth it if having that employee can help you earn more money. If this is the case, you might take out a loan to help prepare for the employee, cover recruiting fees, and pay for wages until your business begins earning more. When figuring out how big of a loan to take out, make sure you consider the true cost of hiring an employee.

This article was originally posted here on Entrepreneur.com.

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Cash Flow

How Stokvels Allow You To Make Smart Purchases Through Group Buying Power

The traditional model of stokvels are evolving. A major draw card that comes with starting or joining a stokvel club is the group buying power that comes from the cooperative model.

Tshepo Moloi

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The traditional model of stokvels are evolving. A major draw card that comes with starting or joining a stokvel club is the group buying power that comes from the cooperative model. Yes, this can be used to secure significant discounts from wholesalers in many instances when making bulk purchases and sharing these savings across members. However, as stokvels have evolved over time, we are seeing more and more stokvels looking to use their group buying power to make “smart purchases” that can turn a profit in the long run.

Arguably becoming business club orientated instead of consumer club orientated. This article explores smart tactics stokvels can employ to get the most bang for their buck in 2018 instead of purely being consumption based.  

Related: Stokvels 101: Is Group Saving For You?

How do you generate income with your group buying power?

Getting a great deal on perishable goods is never a bad thing. However, your stokvel can do a lot more with its buying power to earn revenue for its members. Our foreign brothers and sisters from the rest of Africa who are running spaza shops have unlocked one of the secrets to this. Using their collective buying power to amass perishable items at notably discounted rates to sell at a highly competitive rate, they are able to earn revenue from the cooperative model approach. This principle can apply in any business where bulk buying opportunities exist for “cooperatives”.

For example, minibus taxi owners/associations looking to get better deals can galvanise and approach car manufacturers and those who sell parts for better bulk discounted prices on vehicles or parts. The trick here is to look at purchasing “perishable goods” that as their value or usage gets discounted, you are able to generate revenue out of them higher than the purchasing amount.

How to identify perishable goods that can generate revenue for you or your stokvel?

Based on the taxi and spaza shop examples above, arguably it is easier to identify such goods when you are in a common business with your stokvel members. However, this is an economics  exercise i.e. identifying goods which are high in demand that you’re stokvel can supply at a profitable rate. As a stokvel, you should be asking yourselves what are essential perishable goods that are in high demand, that your family, close friends and immediate neighbours need. For example, toilet paper is a perishable good that is and always will be in demand. Would it not make sense to source this perishable item at a bulk for sale to friends and family of the stokvel?

Better yet, if one of the stokvel club members has enough storage space, would it not make sense to purchase the toilet paper making machine as an asset? Your stokvel must get entrepreneurial about the immediate opportunities that exist around them and see how best to take advantage of these gaps. However, if your stokvel does not have a slight of entrepreneurial bone in it not to worry. There are innovative ways for your stokvel to purchase such assets that yield great returns for your stokvel club. One such way to do this is through asset crowdfunding platform, The People’s Fund.

Related: Picking Your Lane: Maximising Your Chances Of Success And Happiness

The truth is that your bulk buying power strength depends on how well your cooperative model approach is organised and well run. The stronger your cooperative model approach, the stronger you will likely leverage off other forms of revenue generators better than perishable goods such as asset rental discounting products.

At the end it comes down to not only how much you have managed to save but also how well you can generate additional revenue from your savings. After all, isn’t money suppose to work for you?

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