SIMPLE WAYS OF MANAGING CASH FLOW CHALLENGES BY MICRO/SMALL-MEDIUM SCALE ENTERPRISES By Godwin O. Elue

The igbo man’s definition of business as the act of “using money to pursue money” accurately summarizes the fact that cash is the lifeblood of any business venture. No wonder it is generally described as the king in business.

Apart from the fact that money or cash is the most important resource that is required to establish any business, it is also what keeps every business enterprise running. But, poor cash flow management has been one of the greatest factors contributing to the high rate of business failures of micro/small-medium scale enterprises.

Thus, finding the most efficient ways to manage cash flow is one of the most important tasks facing every business owner/manager, irrespective of the size and nature of the venture. Today, with the challenges of a weakened economy and limited resources, managing businesses, regardless of size and industry has increasingly become a very complex issue. Therefore, the success of any business enterprises today goes beyond having a great product or aggressive marketing but the ability to maintain an efficient cash flow to keep lubricating the engines of the organization.

As a credit control manager, I have observed over the years that, many business owners, particularly Micro/SMEs, tend to pay more attention to increasing sales than they actually do in monitoring cash flow.

For many Micro/Small-Medium Scale enterprises, maintaining an efficient cash flow is a real big challenge. Based on simple research findings, it was observed that over 67% of Micro/Small-Medium Scale enterprises operating in Nigeria today are either struggling with inability to meet matured obligations or barely struggling to hang on due to liquidity problems.

Liquidity problem occurs when a business enterprise does not have sufficient cash available to meet matured obligations. This problem, if not tackled immediately could lead to the business enterprise becoming insolvent. Insolvency is when the business cannot meet its matured obligations (cannot pay salaries and wages, cannot pay for raw materials for further production, cannot pay rent and other overheads). That is why, efficient cash flow management is an imperative for long run business survival.  

SOME OF THE BENEFITS OF EFFICIENT CASH FLOW MANAGEMENT INCLUDES:

1.      Helps the business to meet matured obligations timely

2.      Take advantage of juicy opportunities

3.       It improves the profitability of the business

4.      Helps to protect the integrity of the business and the owner/manager

5.      Help prevent crises and associated risk of borrowing during a period of financial difficulties.

CAUSES OF CASH FLOW PROBLEMS

Business organizations fall into cash flow crises due to several factors such as enumerated below:

a.       Too much stock: too much inventory involves a lot of cost and could also hold down cash which could have been used for other profitable line of business. There’s also the potential risk that the stock might become obsolete.

b.      Inability to protect your working capital: Working capital is money available to a business enterprise for day-to-day operations. Many micro/small business owners do not know how to separate their personal cash and their business working capital. Most times, they unknowingly lavish their business working capital on personal needs which have no corresponding income contribution to their business.

c.       No Credit Policy: Most micro/SMEs do not have well defined terms of sale and credit policy. They sale on credit with only a verbal commitment by the debtor and such debts could drag longer than necessary and strangulate the business. In credit management, the longer a debt the lesser the probability of its collection thus the possibility of bad debts becomes so high. Bad debt is a debt that cannot be recovered again. It is a loss to the business.

SIMPLE WAYS OF MANAGING CASH FLOW CHALLENGES

Many business owners/managers often blame cash flow crises on prevailing economic situation but research has shown that, even during periods of economic boom, many small businesses still experience cash flow difficulties, especially during their first years of operation. Thus, instead of you given up on your dreams of going into business simply because the economic situation is not allowing you to hold cash, you can take the following suggested steps to minimize the impact of cash flow crises in your business. You can take the following steps:

a.       Have a separate account for your business different from your personal account. If possible, avoid the use of Automated Teller Machine (ATM) Card on your business account. If you are the owner-manager of the business, you can place yourself on a monthly salary and restrict yourself to spend within your salary.

b.      Make sure that every cash sales is deposited into the business’s bank account immediately

c.       Create a realistic cash flow budget for both the short term (30-90 days) and longer term (12 months and above) and ensure that you comply with it.

d.      Redouble efforts to collect outstanding debts owed your business. At the point of sale have a documented agreement between your business and the debtor stipulating the exact date that payment is expected.

e.       Look out for those insignificant expenses that occur repeatedly of which, their cumulative effect could have a significant effect on the business finances. The bible describes them as the little foxes that spoil the vine (Song of Solomon 2:15).

However, if you are already in serious cash crises and do not know how to come out of it, you can contact me for a one on one discussion. Do not forget that there is no problem without a solution.

My contact details are:

TELEPHONE: 08052833097, 09097917225

WHATSAPP:  08033291724

E-MAIL:          thinkingminds@ymail.com

BLOG:            http://healthandmicrobusiness.blogspot.com.ng

 Godwin Okwuanyusi Elue is the Credit Controller, Lagos State Radio Service (Radio Lagos/Eko Fm).