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Ask an entrepreneur what keeps them up at night, and the answer is, “cash flow.” The money that moves in and out of your business (or lack thereof) is the single biggest challenge for business owners. We asked South African entrepreneurs how they tackled cash flow problems when they were starting out.
Nothing compounds cash flow problems as quickly as disorganised bookkeeping. Use apps like Xero or at the very least, a spreadsheet tracking your income and expenses that you update frequently. Have an invoice numbering system, know who has paid, who still owes, and make sure you have enough set aside to pay salaries and your suppliers.
Especially if you know that your client only pays in 14 days, 30 days or needs to have received your invoice before a particular date so that it is processed at the end of the month. “I invoice by the time their accounts needs all invoices in for month-end payment runs and they pay within a week,” says Jo Duxbury of Peppermint Source.
If you’re asking your clients to pay within 30 days, but you need to pay your suppliers within 14 days, then your credit terms are out of sync.
Meg Pascoe of catering company, The Counter, uses this system: “We work on a 50% deposit to secure bookings far in advance. All invoices are paid in full at least 48 hours prior to the event. If the client hasn’t paid, I won’t let the food leave the kitchen. Easy as that.”
“Understand and account for your future tax liability (PAYE, VAT and Provisional Tax) at all times,” suggests Tom Manners, Managing Director of Clockwork Media. Open a separate savings account for these expenses, and be diligent in putting earnings towards these payments, so that you’re not scrambling when they become due.
Business coach Brent Spilkin of Growing Pains has this advice, “If your margins are always high and you are consistent, then when clients pay late you should have accrued enough money to cover the lean months.”
Which brings us to our next point, how much should you keep in your account for a rainy day? This is dependent on the size of your business and your industry. Catherine Pound is a wedding photographer who is busier in the summer months when weddings are more frequent. “I have to have a minimum of 6 months’ worth of expenses and direct debit cover to survive the winter months.”
Regular income that you can rely on is the ultimate ‘win’ for the small business owner. Especially if it’s paid upfront. “My retainer clients pay in the beginning of the month, for that month,” says accountant Chantal Odette le Roux.
This 14-minute video explains how to do an annual cash flow forecast for your business using Microsoft Excel.
From starting out to growing your company and even non-financial support, Absa’s Enterprise Development will help you take your business to the next level.
