More than just#PositiveVibesOnly, Your Small Business Needs #PositiveCashflow Too!

When they say that cash is king in business, this is exactly what comes to mind.

A king calls the shots!

Your small business may have the best ideas and most innovative products but without money, nothing gets done. Cash flow simply put is how money comes in and goes out of a business. A positive cash-flow means that there is more money coming in than there is going out. Negative cash flow comes with a lot of problems. It is like diarrhoea — passing out more than you take, the business may in fact die of dehydration.

Cash is King. Photo by Valario Davis on Unsplash

More than just positive vibes, every business needs positive cash flow to survive every day. In our profitability checklist, we shared Maleek’s cash flow story and other interesting ones with lessons for your small business. If you have not read it, you are in luck. The Profitability checklist is still up for FREE, get it here. If you want to know how to keep your cash flow positive, continue reading.

But my Business makes Profit!

That is great, really! But profit is not the same as positive cash-flow. A business can be profitable and still have a negative cash flow and vice versa. Profit is for sustainability while positive cash flow is for daily survival.

Your income statement may show a profit of N500,000 because that is the difference between your revenue and expenses. Meanwhile, your bank balance is just N20,000 because most of your revenue was from credit sales.

Having a positive cash flow helps your business to pay up its bills at the right time and ensure its smooth day to day operations. Banks and other creditors would also like to know if your business will be able to meet up with interest payments in the case that you need a loan to expand your business or make certain business decisions.

How to Keep your Cash flow Positive

1. Track the Cash: “You cannot control what you don’t measure” holds true in cash management for your business. Keep records of how cash comes in and how it goes out, monitor the trends and make healthy predictions for your business. When tracking cash, do not include non-cash transactions like credit sales. A cash flow statement gives you a summary of all cash activities in your business.
2. Watch the floor: You should also keep a minimum balance bank account. This would serve as your emergency fund when there is no inflow. Accountants usually recommend at least one month’s expenses as minimum. So, if on average, every month, your business pays bills of N100,000, your bank balance should not go below that. Some businesses in other cases keep their equity as their minimum balance, this helps so that the business doesn’t immediately go bankrupt on a single bad business decision that didn’t pan out right.
3. “No Credit today, come tomorrow”: Make agreements about payments with your clients or customers before you deliver products or services. Reduce the number of days allowed for clients or customers to pay. You can also encourage them to pay earlier by giving discounts for early payments or ask for deposits where necessary. At Triift Africa, we are all for stress-free processes, use technology to your advantage. These accounting packages let you send invoices to your clients’ emails and remind them to pay regularly.
4. Earn More, Spend Less: One sure way to keep your cash flow positive is to reduce the amount of cash that goes out. Take these steps to reduce your growing business expenses. At Triift Africa, we also encourage small business owners to be creative with how they earn money. Find avenues for your small business to make more money than your primary product or service. For instance, a gift shop is likely to make more sales during festive seasons. In off seasons, they may offer to supply and customize souvenirs for events. This means that you are not putting all your eggs in a single basket.
5. Pay Later: Make arrangements with your suppliers to allow you pay for their services at a later date. Also, let your invoices serve their tenure. If you have a 30-day grace to pay, wait till the 29th or 30th day to ensure you have enough cash before you do.
6. Pay Easy: Make it easier and more convenient for your customers or clients to pay for your products or services. There are a good number of online payment options, use them. Be petty, take extra care to read the fine print, make sure you are not paying excessive transaction costs and charges. In all, be sure that you are making the best decision for your business.
7. Save up or Borrow: when you have capital projects to run, say buy an equipment or expand your business, it is safer to either save up in bits for that goal or take a loan so that your cash balance does not take a dive. This means you have to plan ahead to make better cash decisions.

Attend our first business finance class. For a heavily subsidized fee of NGN 2000, you can learn how to; Raise money for that idea you love, basic bookkeeping, boost profits by identifying income streams and also have a sustainable outlook on your business finances.

Learn how to understand a cash flow statement: WATCH

Have you had any cash flow problems in the past? How did you handle it? If you need more help with creating and analysing your cash flow problems, you have help! Talk to us at Triift Africa on Facebook, Twitter or Instagram. We’ll be waiting when you come!

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