Even when your business is profitable, you still face the likelihood of closing down if you do not manage your cash flow diligently.
Managing your cash flow well is thus the very lifeline that can mark the difference between your business’ success or collapse. Here are some top tips on how to go about managing the movement of cash into or out of your business:
- Have a clear Forecast: Have a comprehensive understanding on your business’ money flow. This is your very primary step towards effective cash flow management. You need to come up with a well-laid schedule of the expected business income and expenditure over the next 12 months to be on top of things.
- Working capital: Always make sure that all the required working capital is available, any time. This will refine your business operations and further boost your profit making margins.
- Avoid mixing business and personal finances: Business money must always be business money. Period. If you start mixing, your business will be headed to the yawning sepulchers.
- Cash diversion: Diverting cash to other personal projects will certainly send your business to the death kneels. Avoid cash diversion; plant back the profits into the right business use.
- Lifestyles: Don’t be cheated by the high cash flow and quickly adapt to a lifestyle that befits the cash that you handle courtesy of your Business. That is not your personal cash; it is your business’ cash. As an owner, avoid financing your lifestyle with business cash.
- Care for the source of business finance: Avoid cash from very short funding with very high interest rates, for example, from shylocks. This is a route straight to a destination called bankruptcy.
- Expansion: Expand progressively to avoid over-expansion. If you expand, avoid buying infrastructure for example warehouses, instead go for leasing. Buying ties up huge amounts of cash in buildings.
- Pick a business loan facility: A loan facility is always a positive boost. Before you head to the bank though, have a water-tight plan, and do not borrow money for recurrent expenditure. While at it, avoid the urge of borrowing more than what you require. It is vital to remember that the best debt is the one that is paid.
- Maintain 36% debt ratio in borrowing: As an entrepreneur, if you earn Ksh100, 000 then you only borrow Ksh36, 000 and not more than that.
- Avoid Dead Capital: This is property that is informally held and that is not legally recognized. Uncertainty of ownership of such capital downgrades the value of the asset or even the ability to lend or borrow against such assets.
George Wachiuri is an Entrepreneur, a Philanthropist, a Motivational Speaker and the CEO, Optiven Group.