Managing a cash flow crisis in your start-up

Cash flow- the one item at the center of every business is also the key impediment to the growth of many businesses.

In Kenya, well-thought out business plans hardly survive five years.

This is often due to improper budgeting, failing to meet short term needs such as paying employees and suppliers on time. Here are some tips to unblock the cash taps.

Know telltale signs of declining cash flow

If you are faltering when it comes to meeting your monthly obligations, it is time to take a serious look into the business model. Among them could be failure to pay workers on time or going for several months on end without paying suppliers. Brian Gachari, a real estate developer says a drop in sales is the clearest sign that the business is swimming in rough waters.

“Sometimes it may not be your own making. Customers may really like your product but lack access to credit. Either way, it results in poor sales,” he says. Ignoring such early symptoms in cash flow will lead to a permanent death of the once-promising business.

Be realistic with forecasts predicting good cash flows

If the business has been going through a rough patch, it helps to readjust your sales projections and quickly find other creative ways that will ensure constant cash flows. Also, do keep in mind that projections are just that – projections.

They may or may not materialise. Daisy Rabar, a Nairobi-based event organiser says that such projections must be weighed carefully especially in a seasonal business.

“The event industry is a seasonal one. One day you predict 70 per cent profits and you end up getting nothing. Sometimes sales forecasts may depend on social media reactions on past events. Be careful before committing serious cash based on the hype,” she advices.

Keep running costs to a minimum

Every businessperson knows that keeping costs low is good for the business.  Why then do businesses sink by spending more on running or production costs than they can bring in? Experts advise that a good business learns how to trim the extra fat that makes a venture bulky. 

For example, could you cut off the middle men and procure directly from the source? What about getting people to work part time, rather than hiring permanent employees?  

“In my business, human resource and IT teams are not permanent. We have also learnt to reduce non-essential items and activities not directly related to sales and collections.” Gachari says.

Keep unplanned costs or payments to a minimum

You may plan to stay within budget and encourage your team to find ways of reducing costs. And that’s great. However, some hidden costs might be your undoing.

Count every penny needed to sell or produce a product. For example, some deliveries may require that you include insurance costs. Forget these and you poke holes in your cash flow pipes.

Grow revenues without corresponding costs

Can you look for affordable methods of generating business leads and enquiries like developing your social media front?

This is cheaper than spending cash all over town looking for a marketing deal to promote your products. In addition, develop products or services that meet the clients’ current needs as these will require less marketing legwork.

Offer favourable terms to clients

The customer is always king, so the adage goes. Your customers are the reason you set up the business in the first place and can make or break your business.

Treat them with kid gloves if only to extract that extra shilling from their pockets. With the difficult real estate business environment in Kenya, Gachari learnt this truth early on. 

“We now have to be flexible in client payments. Whereas we could ask clients to pay their dues in three months, now we are open to them paying up in one year or longer,” he says. Just ensure you have a fallback plan if you choose to extend payment terms.

Decide whether you can handle extra business proposition

Some might fear taking on extra business proposals for fear of depleting or diverting their cash flows. Others will jump into the new opportunities with the aim of “diversifying their business offering.” Where is the balance? It depends on the level of involvement and expected returns.

Rabar will not let a new business opportunity go to waste. In the past, she has burnt her fingers experimenting on several business leads but believes she leaned her lessons.

“I would not decline any new business proposal but look at ways of accommodating any new business. Just make sure you can meet your customers’ needs at a cheaper cost without compromising delivery. Such opportunities may not knock twice,” she says.  

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