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Rajes Govender - Is Your Cash Flow A Victim Of Rapid Business Growth?

Updated: Oct 5, 2020

It all seems wonderful when the orders flow in and business growth has finally become a reality until your accountant mentions that the business is running short of funds to pay salaries and suppliers. The business is cash strapped. Does this sound familiar?

Cash flow planning is critical for sustainability at all times. When a business is growing, it is even more critically necessary.

Start with doing a projected income statement for the next six months. Sales numbers to drive the income statement forecast is a key variable. Know your real costs to operate. Ensure that the business is delivering profit at gross profit and net profit levels.

Making a profit does not imply cash in the bank at the end of each month. Use the projected monthly income statement results, payment terms with suppliers and terms of credit given to customers to drive the cash flow forecast. This will highlight when cash problems will be surfacing. Make a plan for the cash shortfall months well before it arrives.

Whether you are a one man show or a large business, always have a credit policy. Be clear on the terms you can afford to give customers and do proper credit checks before you onboard new customers or extend more credit to your customers. Late payment from customers is usually the unforeseen show stopper affecting cash flow. Having a credit policy is not dependent on the size of your business. It is a non-negotiable for sustainability.

For some businesses, it just takes one big customer to not pay on time to shut the business down. Manage working capital (stock, debtors and creditor balances) smartly to ensure that funds are not unnecessarily stuck in assets costing you money and cash flow problems.

In conclusion, cash forecasting and cash management is an overall team effort within a business. Sound business policies, maintaining good accounting records, forecasting as well as good relations with your bankers and suppliers are the essentials to help you get through your cash flow challenges.




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