Merchant Capital

What NOT to do when it comes to optimizing your business’ cash flow

Getting cash to flow is one of the hardest and most necessary components when it comes to running a successful business. While it seems like an overwhelming feat to master, it often simply involves small strategic moves that can mostly be planned for. Merchant Capital has funded thousands of businesses with hundreds of millions of Rands in working Capital. In our ongoing dealings with entrepreneurs, we have identified a number of simple misconceptions when it comes to cash flow. So here is our list of the things that you should absolutely NOT BE THINKING if you plan on protecting your business’ working capital:

“I’m going to let someone else worry about my bookkeeping.”
While this might seem like an appealing thought, it is not recommended: No one knows your business like you do. Even though you may have an accountant, you should still be going over the books yourself. Familiarize yourself with every aspect of your finances and make sure you are consistently monitoring your budgeted amounts in relation to your actual spend. By doing this you will know exactly when your business needs to cut costs or when it could benefit from a cash injection.

“I never insist on favorable terms upfront.”
Upfront negotiation can be time consuming and may even slow things down initially. But this is a necessary component when it comes to securing future cash flow: Often your products don’t sell at the same rate as they did when initially ordered, and sitting with “cash” on your shelves really hampers cash flow. If you can agree on favorable payment terms beforehand, you can closely monitor your cash flow and take the pressure off your business in the interim, while you move product. Agreeing on good payment terms might also open up the opportunity for early settlement discounts or facilitate planning for the season with bulk purchases and associated discounts.

“I’m far too busy to worry about invoicing.”
With the demanding day-to-day running of your business, invoicing can easily fall to the bottom of the pile. But getting behind on payments can quickly put your cash flow on the back foot. Paying your suppliers when required means you know exactly how much your business has to work with for the remainder of the month. Additionally, don’t get behind on collecting from your clients, as this can also hamper your cash flow later on.

“I prefer to keep all my cash in one place.”
While some business owners find it easier to run all their finances through one account i.e. personal and business; this has serious repercussions as it can drastically skew your books and projections. It can also tempt you to use business funds for personal use, which can seriously jeopardize your cash flow and cause unnecessary stress at key periods in your financial year.

“The more inventory I carry, the better.”
This may seem the case, but stock-on-hand needs to be strategic: Make sure you know exactly which of your products are selling and which are ‘fails’ requiring no further investment. Closely monitoring the sell-through rate of your stock means you know which products to put your focus and finance behind. Getting into a habit of placing the same orders with suppliers without monitoring the rate at which they move, can ultimately leave you overstocked and out of pocket.

” I never worry about when things might get slow…I only worry once they do.”
A good entrepreneur understands that there are peaks and valleys in every production line. So rather than being surprised, plan for both your busy and slow seasons upfront. Keep your inventory at the optimum level to ensure you always have stock-on-hand but are never in a position to be overstocked.

“I hate asking for help when my business needs it!”
This is the biggest misnomer of all! All businesses have unforeseen opportunities or expenses requiring a quick cash injection. That is why it is so important to have funding partners who hold your best interests at heart and who can carefully guide and advise you once funding has been issued.

At Merchant Capital, we can help change how you think about business. We guide you on how to effectively manage your cash flow and ensure that when you need that capital boost, it’s used to effectively take advantage of opportunities without putting pressure on the rest of your business. In our dealings with thousands of South African entrepreneurs, we have deduced that the best use of a merchant cash advance is for projects that enhance business activities rather than simply plugging holes. So for small business finance options, contact Merchant Capital for a funding solution that can truly advance your business and help you grow.

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