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Managing Business Cash Flow Problems

Provided by SME Solutions Center - Kenya


Cash Flow Problems

Cash deficits threaten your business. This is because despite the crunch, you have to pay certain business expenses such as staff wages, rent, and creditors’ dues.

Your Role

Amid cash flow problems, you need to move quickly and control your cash so as to stabilise your business. This action allows you to focus and properly tackle the cash problem in a conducive environment.     

Coping Strategies

So as to control your cash during cash flow crunches, you need to develop a tourniquet like cash budget. This budget will derive from accurate cash flow projection or cash flow forecast.

Cash Budget

While developing your cash budget, incorporate certain important principles. Key principles include:

  • Never spending more money within an accounting period than the opening balance
  • Adjusting your payables to fit your opening cash balance for every accounting period
  • Discarding all written but held checks
  • Reconciling all bank accounts and beginning with a precise balance
  • Signing every check that your business writes so as to refine your focus on your business’ cash flow 
  • Putting all your cash within a single account so as to facilitate easy monitoring
  • Holding weekly cash expenditure meetings with your personnel
  • Being conversant with your financial numbers
  • Adopting a conservative stance when estimating cash inflows  
  • Showing leadership by personally developing a recovery course of action  

So as to execute expenditures that are the same as your opening balance, you need to adjust your payables to be equal to the cash you had at the start of your accounting period.  You would ensure conservativeness by carefully projecting your receivables. To achieve this objective, you could meticulously organise your anticipated into long- and short term categories. You could as well base your receivables projections for each of your customers on the customers’ performance in previous years.         

Rationale for Executing Strict Cash Control

  • Cash is your business’ sustenance, without it, your business dies
  • Creating more cash allows your more time to determine the cause of your cash crunch
  • Cash reduces uncertainty and enhances confidence in you as well as in your staff     

Strategies for Creating More Cash

You generate more business cash by:   

  • Collecting more cash
  • Spending less
  • Controlling your purchasing

Collecting More Cash

You would collect extra money by:

  • Contacting every debtor and asking them to pay up
  • Factoring in qualified receivables by sending past owing accounts to collection
  • Seeking lease abatements, tax refunds, and other cash concessions 

Spending Less

To incur less expenditure, do the following:

  • Sack underperforming staff
  • Only pay your critical suppliers
  • Eliminate bonuses and other supplementary costs 

Regulating Your Purchasing

To control your purchases, you would:

  • Avoid buying non-essential items
  • Cancel all purchase orders
  • Signing each purchase order your business writes
  • Accurately predicting your business’ requirements for the net quarter  

 

To your small business, cash is what sap is to vegetation. Lack of cash is the greatest threat to small businesses in trouble. Maintaining a positive cash balance requires your discipline and sacrifice. You can maintain a positive business cash flow by never spending more in a trading period than you had at the beginning of the period. This is the key to stabilizing your businesses so you can make informed decisions about what to do next. Any cash flow problems are thus negatively reflected in your business’ performance. It is important that you conduct a proper cash flow forecast or cash flow projection exercise. One cash crisis remedy involves tightening cash outflow and inflow movements. You need to ensure that all possible cash receivable accounts are settled. Further, make sure that only the absolutely necessary expenditures are allowed. You as well need to closely monitor cash flow related operations. Being the head, you need to demonstrate leadership with regard to handling your business’ finance issues. This will include being proactive in charting a suitable course of action for your subordinate staff to take.

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