Business | Cash is King

By Gareth Cotten

If you are interested in this topic, take a look at our University of Cape Town Basics of Financial Management course.

If the three words that define property are “location, location, location”, then the three terms that apply to business would be “cash flow, cash flow, cash flow”. How many times have we seen a business doing extraordinarily well – booming sales, staff growth, fat profits – and then vanishing three months later? Ninety-nine percent of the time, it’s a cash flow problem.

You see, no matter how many sales you’re closing, and no matter how much profit your reports say you’re making, if you can’t pay staff, suppliers or day-to-day expenses, you’ll be out of the game faster than you can say “Italy” or “France”. And therein lies the crux of cash flow: whatever your business, you need to make sure that you have enough actual cash (in your safe or in your bank account) to pay what needs to be paid, when it needs to be paid.

Managing your cash flow consists of a few main elements:
1. Ensure that you get paid by your customers. It’s all good and well making a sale to a new client but, until you’ve been paid, have you really benefited from the transaction?

2. Control your cash outflow. This includes curbing unnecessary spending, as well as holding onto your money for as long as possible (e.g. by negotiating credit terms with your suppliers wherever possible, to give you more breathing space before you have to pay them back).

3. Tracking and projecting into the future. Knowing when and where money is coming from, and going to, allows you to make provision for the bad times – whether this is setting up a reserve fund for the quiet season, or negotiating an overdraft facility with your bank to tide you over.

So, whatever your current situation, make sure that you have your finger on the pulse of your cash flow – they weren’t kidding when they said it’s the lifeblood of your business!

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