The current economic climate in South Africa is tough: between soaring interest rates, high cost of living and persistent inflation, managing business cash flow is an absolute necessity.  Most businesses are cyclical in nature, meaning you're bound to have ups and downs in turnover. But even in understanding this in advance, these peaks and troughs can be tough to manage.  So here are some strategies you can use to manage current economic pressures,  identify the trends in your business and really harness this to manage your cash flow more effectively.

1. Flag risks and think ahead

There are so many risks when running your business, and so it stands to reason that many unforeseen challenges lie ahead. These may be things like anticipating that a big order may be cancelled or a substantial expense suddenly comes in. Or you may worry that an important client doesn't pay up as planned, which will cause a sudden dent in earnings. But if you consider these as possibilities before they happen, you can work these scenarios into your cash-flow budget. This can be done in a really simple way: By spreadsheeting your cash flow and accommodating values for hypothetical scenarios by adding or subtracting inflows. This will give you an immediate sense of the potential knock-on repercussions from an unforeseen event and so you can start to anticipate how you might handle it if this comes to fruition. 

2. Think about staff benefits

It may seem surprising, but retaining your key staff is essential to keeping a healthy cash flow. In a way, good people make good decisions, which in turn leads to good cash flow. So looking after your people is important. With this in mind, following the pandemic, many businesses have begun reevaluating employee benefits, including childcare and mental health benefits. This sends a clear message that head space matters, and this outlook will help you retain top talent in a competitive market. 

3. Cast a careful eye on inventory

Dead stock sucks up working capital, so you always need to make sure that you understand your inventory and lose the duds. Your inventory levels should consistently remain as lean as possible so that your working capital can be used productively rather than passively. 

4. Revisit goals for year-end

It remains ever important to know what you are working towards. Year-end goals should be revisited regularly, and action plans should be shifted accordingly. If you have a clear idea of what your objectives are and how your cash flow is looking, you will then be in a strong position to self-actualize and put plans into place. 

5. Invoice timeously

You may be surprised to find that many businesses don't have a clear picture of amounts owed to them. It is crucial to invoice timely and follow up regularly. This will have a direct impact on your cash flow. If this feels overwhelming, it is a good idea to get automated accounting software to streamline your processes. 

6. Identify external funding sources

Rather than thinking about funding as a last resort, approach it strategically. This can be done by integrating lending into your long-term financial planning. Cash Advances and short-term loans can be cleverly used to alleviate immediate cash flow issues. Look for lenders who are flexible and who understand the needs of your specific business, as they will have lending structures that are built for businesses like yours. External sources of working capital have many benefits, including getting quick cash infusions to deal with uncertainties. You can obtain a fluctuating line of credit that shifts up and down based on your business's ability to make repayments. You can even use it for specific projects, so you don't have to bankroll them yourself and eat into cash reserves. Forward-thinking lenders like Merchant Capital also offer you a built-in safety net because you will not be allowed to take on more debt than you can manage and overextend your business. This takes the stress out of lending and rather repositions it as a tool to grow your business. 

The bottom line

The pandemic taught every entrepreneur a hard lesson - that cash flow is king. Fast forward a few years, and entrepreneurs have adapted to understanding that working capital and strategic use of cash flow make all the difference to a growing business. This is especially crucial during our current tough economic conditions, where businesses not only have their own natural cycles to worry about but also troubling economic conditions, which can take years to recover from. In these times you either need to have your own cash reserves on hand, or you need to obtain external funding. Keep in mind that increasing cash flow processes won't happen overnight, and it may take at least a quarter to see the returns. In the meantime, consider an investor, short-term loan or cash advance. A cash advance is a great option for retailers as funding can be acquired in less than 48 hours and has a unique repayment method that works directly in line with your turnover. Meaning you get the working capital you need to tie you over before your business can wash its own hands. For more information on assistance with negative cash flow and smart business fundingcontact Merchant Capital today.

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