For small businesses in South Africa, managing cash flow is key to overall business efficiency, and while it has alway been important to small and large businesses, in a COVID-19 and post COVID-19 landscape cash flow is even more important.
A Mckinsey report that focused on South African SMEs, reported the need for technology to assist in managing costs and furthering business reach. Managing cash flow and the ability to utilise technology to streamline services, reduce costs and use then further data to innovate in the market is of the utmost importance.
The following measures to manage cash flow are key for any small business:
- Reduce outgoing
- Increase income and revenue
- Review stocks levels
- Tighten your invoicing process
- Build a cash reserve
- Review your profit margin
- Use a cash flow statement
- Monitor cash flow regularly
1. Reduce outgoings
Looking for areas of wastage in your small business is key and cloud technology and cloud accounting software can help streamline processes. Cloud accounting software allows for you to manage and report on recurring monthly, quarterly and annual expenses and see where there is room for improvement. Reducing outgoings could look like reducing the cost of utilities, rent, payroll, subscriptions or other unnecessary expenses – and all help with cash flow
2. Increase income and revenue
Looking at ways to increase revenue is another area of focus for better cash flow management. There are various ways you can increase revenue and income. While selling off assets you no longer need makes for a quick cash injection, longer term plays such as exploring new sales channels and expanding your offering in line with market changes all assist with cash flow.
3. Review stock levels
Reviewing stock levels is another measure to assist in managing cash flow. This is important as holding too much stock increases warehousing and insurance costs. To ensure the best results, practicing lean stock control is helpful and can free up cash that can be used in other areas of the business.
4. Tighten your invoicing process
Ensuring your invoicing process is as streamlined as possible is key to effective cash flow management. The areas to focus on regarding invoicing are payment terms, as late payments can cause major issues at scale and a knock on effect for your business. Accounting software can help streamline this with quick and easy measures to send and keep track of invoices and payments.
5. Build a cash reserve
Having a cash reserve can be helpful in times of uncertainty and opportunity. If the business has ‘spare’ cash on hand, it is ideal to build up a reserve for both unexpected expenses that occur in times of uncertainty, and for strategic investments in times of opportunity.
6. Review your profit margin
Reviewing profit margin is another way to effectively manage cash flow. This can range from looking into supplier costs, evaluating alternatives and potentially revising pricing, in line with the market, to increase your overall profit margin.
7. Use a cash flow statement
A cash flow statement provides insights into expenses and income, how business changes impact your cash flow, and areas of wastage or costs that can be reduced. As all of these can be tracked using a cash flow statement, it is imperative that small businesses utilise them to monitor and understand business areas.
8. Monitor cash flow regularly
Ultimately, managing your cash flow effectively is the result of monitoring and staying on top of your finances and having a clear understanding of your cash position is key to this. Accounting software makes it easy to reconcile your accounts, generate reports and more which assists with this.
Overall, utilizing and leveraging technology and cloud accounting software can assist with cash flow efficiencies. Use the free QuickBooks cash flow template and ensure your small business is always on track.