Cash flow to business is what blood is to the body. A business that does not have sufficient cash flow will have a problem surviving in the market where “cash is king.”
So how then should a business manage its cash flow?
Plan for every fund
A senior economist at SPM Professional, Mr Paul Alaje, says business owners must have a constant negotiation and planning for any fund that comes in.
“What I will advice most businesses to do is to apportion an amount for different things. For instance, what proportion of income do you need to re-stock goods? Such money must not be more than 30%. How much of the income are you going to spend on expenses? That should not be more than 20%. (This is for paying salaries, water bills, electricity bills etc) At least 20% should be for saving and the rest 30% should be re-invested. Such business will remain vital and may not need to borrow,” Alaje said.
Negotiate for supplies
Alaje added that for businesses like real estate where you may need to pay so much for supply of goods, you may not need to pay for everything. “You may need to get the materials you need on loan or credit, you may even tell your supplier to supply and then when the property is completed, you will pay. You should negotiate with suppliers. You need to be innovative about how to get cash flow and this varies from industry to industry,” he said.
Save for the rainy day
Don’t be quick to declare everything you have as profit. You need to save for the rainy day such that when there is a shock or a sudden occurrence in business you will have something to fall back on. By doing so, you will realise that you will always have funds in your business.
Collect payments fast
If necessary, delegate the task of keeping an eye on receivables and contacting customers periodically to collect payment to a trustworthy, persistent member of your team. In that case, the business will have enough money.
Invest in a starving market
Alaje advised entrepreneurs to always invest in a starving market to be able to have constant cash flow. “I tell people to start a business for a market that is so hungry and starving for the service or product you want to sell so that there will be consistent flow of cash into the business.”