One of the reasons why many SMME’s close shop within 3yrs of operation is cash flow management. This reason has become even more important given the current economic crisis. It is my view that many entrepreneurs are unable to map out the inflow of cash (ie) simply put: what business activities bring us cash and what activities cost us money.
1. The idea is to maximize what brings in cash and minimize what costs you money.
2. Make sure that the business has a separate account from your personal one. Do not spend business cash on personal stuff.
3. Restrict your terms with clients if need be in order to collect your cash sooner and enter into agreements with creditors that will allow you to keep the cash longer (eg) 45-60 days payment options. Follow up on what is due to you even with government departments.
It may seem like simple and obvious steps but…
4. Generally our relationship with cash needs to change in order to support business through difficult times. Some people get to spend money based on a contract or tender value even before they’ve issued the first invoice for work done.