Cash is the fuel that drives business, and many financial analysts consider the condition of a company’s cash flow to be one of the most important indicators of that business’s financial health. After all, a well-managed flow of cash is usually indicative of a healthy business, while poorly managed cash flow can cause problems that affect the entire business.
Unfortunately, companies facing cash flow crunches simply throw money at the problem, which is a temporary solution at best. Cash flow management requires more than just a financial fix; it requires an approach that focuses on making a company’s entire supply chain operate more efficiently. After all, the faster goods move from seller to buyer, the faster sellers can be paid.
It’s important to note that a cash flow crisis is usually a symptom of a broader supply chain sickness. Treating this illness requires the attention not only of the chief financial officer, but also of the logistics manager, the purchasing department, operations, the tech guys and even the CEO. And while working with a bank to open a line of credit or amending an existing financial instrument can certainly help, the only real way to address a cash flow problem is to take a holistic, long-term view of the issue.
Fixing a cash flow problem requires companies to examine and improve the three key flows of commerce: goods, information and funds.
1. Follow the Goods.
The faster a seller moves goods to a buyer, the faster the buyer will pay for those goods, and that impacts cash flow. Therefore, businesses must ask themselves how they can improve the speed at which their goods exchange hands. And this goes well beyond the actual transportation of the goods. Rather, it requires an examination of the entire process, from sales all the way through invoicing.
Let’s start with sales. It’s vitally important for a company’s decision makers – and for small and growing firms, that usually means the owners – to be plugged into the sales process, examining the data from the sales staff on a regular basis. How much was sold yesterday, how much will be sold today, and what about tomorrow? The more accurate this information, the tighter the inventory. And the tighter the inventory, the better the cash flow.
After all, every item that’s sitting on a warehouse shelf represents inaccessible capital. Turning that inventory into sales begins to unleash that capital. If the inventory isn’t moving, you’re not moving cash. On the flip side, you have to be prepared to quickly replace sold or outdated inventory. Robust and accurate sales data ultimately drives inventory levels. Of course, this is sometimes a game of chance, but your chances of having optimal inventory levels increase with the accuracy of your sales data.
Next comes fulfilment. When a customer places an order, what happens behind the scenes? Who handles the fulfilment – that is, moving the goods out of inventory and towards the buyers? Is the pick and pack of the goods and the preparation of the shipment an arduous, manual process that delays shipments from leaving your facility? Or have you integrated technologies that create a streamlined, automated and efficient fulfilment process?
Transportation decisions are also important. Sometimes the cheapest form of transportation – usually also the slowest – isn’t the best choice. Spending more on expedited services can often result in improved reductions in the cash flow cycle.
2. Use the Information.
Your next vital key to good cash flow is information, and for that, you must have visibility of your product shipments. Once your goods leave the dock en route to your buyers, how much visibility do you have regarding the progress each shipment is making? Do you have a tracking number for every package? Did you share the tracking number with the customer? Are you aware that a package was delayed due to weather?
While all these questions primarily reside in the operations side of the house, they can also have a major impact on customer service, which in turn can impact cash flow. After all, a customer who feels well treated is more inclined to pay on time and buy from you again
In addition to tracking your shipments, using the information you have about each shipment’s status and delivery time enables you to put invoices into the hands of your buyers as soon as possible. Once the goods are delivered, does your business receive confirmation that the order has been delivered? And upon receiving that confirmation, do you automatically trigger an invoice? All this information helps to build solid, long-term relationships with your customers while improving cash flow.
3. Speed up the Funds.
This is the area where business owners usually look for a quick solution. After all, most of us have heard the laundry list of best practices from a financial perspective on how to improve cash flow.
To be successful at cash flow management is to make sure all three flows of commerce – goods, information and funds – are working together to accelerate the movement of money through your supply chain. Cash flow can, and must, be managed wisely, and better cash flow management goes hand-in-glove with better supply chain management. This will help you create a healthy, strong business.
Financial Literacy Key To Business Success – Especially In A Tough Economy
What can South African SMMEs do to position themselves for success in tough economic times? Arming their people with basic financial literacy is a good place to start argues UCT Graduate School of Business Associate Professor Mark Graham.
In times of economic hardship, good financial and management skills in a business can make all the difference. According to a recent article in Business Day, international investors are sniffing about South African SMMEs that have proven themselves to be well-run during this time of subdued economic growth – and are also attractively undervalued.
Strong balance sheets and stable management in an environment of slow growth economy with low liquidity adds up to some bargain long-term investment opportunities for international consortiums it seems. Among those who have been involved in investment or buyout offers in the past few months are Clover and Interwaste.
It seems self-evident to suggest that well-run businesses attract investment and success. But what actually makes a business – of any size – well-run in the first place?
There is obviously no short answer to this; good leadership, a clear strategy and a strong and motivated workforce all play their part, but one factor that is often overlooked is financial acumen – throughout the organisation. While the accountants and members in the finance team are expected to understand the numbers, this is not always a core competency required in other departments. Yet, having a good working knowledge of finance at every decision-making level, from new managers to members of the board, can be key.
Even if people don’t need to know a lot about finance in their day-to-day job, the more conversant they are on the subject, the better off they – and the business – will be, according to Richard Ruback, a professor at Harvard Business School and the co-author of the HBR Guide to Buying a Small Business. “If you can speak the language of money, you will be more successful,” he says simply.
Financial savvy will give the marketing manager the ability to demonstrate not only that something is a good idea/product or service, but that it makes financial sense too, for example. And it will make sure that the people in the HR team understand more clearly why reducing staff churn is a good idea not only for company culture but for the bottom line as well.
A knowledge of some basic financial decision-making tools (the all-important balance-sheet, for example) and an appreciation of the difference between profitability and cash flow will ensure that non-financial managers are more likely to effectively participate in business strategy and decision-making. Someone who understands the financial statements of a business understands the business in a way that is not otherwise possible. It’s like looking beneath the hood of a car and understanding how it all fits together and why the car can move forward – or not.
Such people can more confidently identify potential problems and inefficiencies before they impact the overall financial performance, because those warnings are almost invariably reflected in the financials first – and often at departmental level. Critically, they can also help identify financial irregularities, enabling them to call out and stop fraud and corruption in its tracks.
Equipping its people with financial skills is therefore a good strategy for a business looking to position itself for growth and investment. And it makes sense for individuals too – Joe Knight, a partner and senior consultant at the Business Literacy Institute in the US and the co-author of Financial Intelligence, says that an absence of financial savvy is “career-limiting.”
Let’s not ignore the fact that there are challenges however. Finance matters tend to scare a great many people. Traditionally, these areas of knowledge carry the stigma of being impenetrable, and financial literacy is not ideally developed at early levels. According to a study by the Financial Services Board, South Africa currently has a financial literacy rate of just 51%.
This means that roughly one out of every two people is likely to prefer to abdicate from financial decision-making – leaving it to the “numbers” people. But with some intervention and training it is possible to empower individuals to decode these mysteries and get to grips with the language of finance.
All things being equal, it’s not pure luck that allows some businesses to operate well and thrive while others fail. Well-run businesses are generally run by well-informed people. In short, decision-makers who don’t understand basic financial concepts and the language of finance simply don’t know what is going on.
While the SA government is currently talking up the need for foreign direct investment to rescue the country from the economic doldrums, there is much that ordinary businesses can do to position themselves for success. And ensuring that their people are adequately equipped to understand the nuances of business through the language of finance is perhaps a good place to start.
Trade Agreement Tips That Will Save You Costs
If you are looking to benefit from trade agreements, you need to keep the following advice in mind.
Trade benefits all parties involved. When a country has scarcity of certain resources or lack the capacity to satisfy their own needs, they have the opportunity to trade the resources which they produce in surplus, for the products they need or want.
When goods are transferred from one country to another, it stimulates the economy as products and money is switched between hands. Over the years, the competitive nature of moving goods from one country to the other, negotiating prices and opening new markets has caused certain agreements to immerge to promote trade between the member countries.
A trade agreement is an arrangement between two or more nations in order for goods to move more easily between borders with mutually beneficial tariffs imposed on imports. These agreements ensure that duty tax is removed or reduced on condition that the importer and exporter provide the correct documents. This is all the more reason for traders to familiarise themselves with the current trade agreements in place.
Tip1# Know Whether You Export To Or Import From A Country With A Trade Agreement
There are a few trade agreements that you need to be aware of which will significantly cut duty tax. The Southern Africa Development Community (SADC) Free Trade Agreement (FTA) is one of them. The fifteen SADC member states included in the agreement enjoy an impressive 85% free trade on goods.
Another trade agreement commonly used by South Africans is the South African Customs Union (SACU) which allows duty tax free movements of goods. This means zero duty tax is payable on trade between these countries. Trade agreements with European countries include the SADC-EU Economic Partnership Agreement (EPA) and the SACU European Free Trade Association (EFTA). We have prepared a list of all the trade agreements as well as the countries involved here.
Tip 2# Know Which Certificate Of Origin Is Necessary For The Specific Trade Agreement
Only traders who can prove that goods were produced or processed in a member country may benefit from these agreements. This is why importers and exporters need to submit paperwork attesting that the goods were made in the country listed as the beneficiary of the trade agreement. The proof provided is called a ’Certificate of Origin’.
A certificate of origin often abbreviated to C/O or CoO is a printed form or electronic document completed by the exporter and certified by a recognised issuing body, validating that the goods in a particular export shipment have been produced, manufactured or processed in a particular country.
The exporter has to submit proof that either a) the products were wholly obtained from that country; this means all components and manufacturing originated in that country, or b) that it is sufficiently processed in the country of origin.
In other words, although some components might have been imported, the product was sufficiently transformed, or value was added in such a way that the final item can be deemed as new or original. Furthermore, if a company was registered in one country and the manufacturing plant in another, the certificate of origin would be issued from the manufacturing plant’s country. There are various certificates of origins used for different countries. Read here for more details about the different documents required to ensure you benefit from lower duty tax.
#Tip 3: Ensure The Certificate Of Origin Is Completed In The Right Manner
These documents must be completed correctly. Most of the information provided has to come from the exporter. If the wrong information has been reported, it can influence the relationship between the importer and exporter negatively.
Common mistakes when filling out a Certificate of Origin may include:
- Identifying the wrong country of origin
- Using the wrong H.S. code
- Providing an incorrect or incomplete and rather ambiguous description of the goods
- Not including a description on how the cargo is packed or reporting a total weight that does not include packaging
- Exporting goods made from imported material and not sufficiently processed to be deemed as originating from the exporting country.
A lot of information can be misrepresented on the certificate of origin. For this reason, we recommend making use of companies specialising in trade administration to ease the stress and to ensure that all the t’s are crossed and i’s are dotted.
Backing You With Smarter Tools
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Since its launch over 20 years ago, QuickBooks has aimed to power prosperity for small businesses and the self-employed with services that help you with income management, expense tracking and more, allowing you to focus on growing your passion.
The new “Backing You” campaign extends this commitment to support small business owners through the challenges of business ownership – with a little help from Danny DeVito.
“The importance of small business is personal to me. At a young age, I watched both my parents and my sister build their own business from the ground up and struggle to balance family obligations with growing their businesses,” says DeVito.
“When Intuit QuickBooks approached me for this campaign, I felt this was a way that I could give back to this very important industry, show them how to make their lives easier and make them laugh along the way too.”
QuickBooks gives you a set of business tools that’ll do all the hard work for you, making sure you get the time to do what really matters to you. “Because collecting receipts is so 80s, and who has time to chase payments?” says Danny.
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