As one of the top five reasons why businesses fail in Kenya, cash flow is one of the major components in a business strategy. When money is tight, it’s tough for a business to experience normal turnaround let alone growth. If the cash flow is not maintained, it can easily put a strain on the business and in extreme cases, shut it down. Fortunately, business owners are not restricted to archaic methods of cash flow management as there are some refreshing strategies to deal with this age-old dilemma.
Take Stock of the Stock
One of the biggest reasons business owners experience strain on their cash flow is if their stock sits on the floor for too long. This could create a situation where the suppliers are settled well before the customers purchase, which means business owners need to tap into reserves to take care of the overheads.
Manage Debtors and Creditors Effectively
One of the fastest ways to have a good business go down the road of cash flow hassles is by having different terms between the customers and suppliers. Ideally, the customer funds should come in before the supplier is paid but this will depend on the terms. When customers tend to go over their agreed payment period, it can also place the business under pressure which is why an investment in a good accounts clerk can be the lifeblood of the business. By getting the payments in faster, businesses have the opportunity to settle the suppliers and continue the cycle of growth.
Capital Injection by the Owner
Sometimes just a lump sum of cash makes the world of difference to the business and none is better than an injection from the owner. Owner’s capital not only has the ability to create a breather where the cash flow is concerned but also allows the owner to become more vested in their business. Thankfully, it does not always require years of saving to do this, as banks and other financial institutions have made the lending process a little easier. This can be seen by this Norwegian example.
When these strategies do not improve the cash flow of the business, other items that could also have an impact include:
- Taking too much money out of the business
- Purchasing too many items that don’t contribute to sales
- Inefficient sales
For the survival of a business, it’s important that owners know their cash position at the end of every day to ensure they remain on target. It is also important to keep funds in reserve to cover those rainy days.