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Cash Flow

In Business Cash Flow is King

Beyond profit, cash flow is king in business. It’s vital for start-up businesses to establish cash flow as quickly as possible during their first year of operation.

Harry Welby-Cooke

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There are numerous cash flow ideas, but here are ten to help you get started and generate cash flow while generating a customer list that will serve as a foundation for repeat business.

  1. Become a marketing genius: Marketing is married to selling.  Marketing is by far the most important ingredient in success. Most accountants will show you that marketing and advertising fall into the expense side on the balance sheet and when you are signing cheques, it certainly feels like that.  Yet, when it’s done effectively, marketing is your greatest asset. If you were to run a R10 000 advert that returned you R20 000 in profit in a matter of weeks, then you’d be doubling your money. Marketing is only an expense when it’s done incorrectly. It is wise to spend 50% of your time in this area of the business.
  2. Primary service or product: One of the easiest ways to boost cash flow and profit is to drive your customers to your bestselling (or primary) product or service with the highest profit margin. Don’t focus on the price, relentlessly sell the benefits.
  3. Deposits or pre-paid contracts: If you are in a service business, reasonable deposits are a great way to generate cash flow upfront. However, you need to deliver on the back end, or else you won’t be in business for very long. If you have a product-based business, you could also do the same with pre-orders, with a percentage of the final sales price going to secure the order or a certain delivered-by date. The key here is to get creative, as there are endless possibilities in making this model work for you.
  4. Periodic “closed-door sales” for new customers or loyal customers: This is a great way to literally create a captive audience for your product or service.  Set it up as a workshop, class or demonstration in an environment you can control and with a sales and pricing process you can direct. For this event, “sale” doesn’t need to mean “discount.” Offering an exclusive, limited-time purchasing period for new customers (and in the future for loyal customers) is an incentive for them to get the latest, greatest, best or most innovative products before everyone else.
  5. Shorter payment windows: Depending on your company, you could combine upfront payments with shorter terms, especially if you are in a service category. It’s best to position the shorter terms as an offer with something to act as an incentive for paying early like a small gift or some other kind of added-value offer. You could also position this as both a thank you and an incentive to keep customers consistent with shortened terms.
  6. Loyalty programmes price: Establish a loyalty programme and add enough value so you can charge a nominal joining fee.  While there may be some initial costs upfront for producing loyalty cards or customer tracking, the extra cash generated over time ends up going straight to the bottom line. Not only can you create a highly targeted list of better qualified customers, but this is a simple way to easily generate cash quickly just by asking for it.
  7. Carry exclusive lines: By stocking items that can’t be purchased elsewhere you can charge higher than normal prices.  The advantage – your customers can’t shop around. This is a great way to avoid C and D-grade customers that generally cost you money instead of making you money. Use the uniqueness of your product as a selling tool. People love to have something others don’t.
  8. Offer big customers a shareholding: If a customer gives you the majority of your business, it makes perfect sense to make sure you never lose their business. Once you have your best customers as shareholders, they will always buy from you and they will probably insist all their friends and contacts do too.
  9. Stop discounting: This means that your sales will return the highest possible profit margins.  Rather offer additional incentives such as free home delivery to assist in closing the sale.  Focus on the benefits and quality of your product and not the price. Don’t be afraid to lose the sale.
  10. Commission only sales team. One of the greatest burdens on any business’ cash flow is sales teams. The safest way to run a business is to pay on performance; but the commission needs to be compelling. It’s also a great way to test people as they usually leave voluntarily if they don’t perform.

Once you get your company up and running, you can expand on these strategies and also look to increase your value adds at different buying, sales or customer contact points along the way. The key is to test and measure what works and what doesn’t, because no strategy will work perfectly for you every time. If you market correctly and test and measure everything you do, keeping your winners and killing your losers, you will eventually find your cash flow “sweet spot.” That will lead to larger increased cash flow, larger profits and a healthier, more successful business over time.

Harry Welby-Cooke is the Master Licensee for ActionCOACH South Africa. He is also the President of COMENSA (Coaches and Mentors Association of South Africa). ActionCOACH is the world’s largest executive and business coaching company with operations in 39 countries. It is also on the list of the top 100 franchises globally. As a highly successful Business and Executive coach, Harry is a master of teaching business owners how to turn their businesses around and accelerate their growth. Email him at harrywelbycooke@actioncoach.com or call 0861 226 224

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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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