Cash is the lifeblood of your organisation and it’s proven that running out of money is one of the primary reasons that businesses fold.
Pyrotec has been in business for more than 50 years and managing director, Rowan Beattie, has seen his share of market fluctuations as the country’s economy has risen and fallen, as well as the turn-around of South Africa’s political position, the introduction and explosion of technology, and massive shifts in consumer expectations.
With this experience under his belt, Rowan offers five tips for managing your cashflow:
Keep a firm eye on cashflow management
No matter how good your profit looks, don’t rely on this. Your profit and break-even points are great for setting benchmarks and goals, but if your weekly focus isn’t managing cashflow, you won’t have money in the bank. Cashflow management should be a company-wide effort that extends beyond the finance department to include sales personnel and relationship managers.
Manage spending with an iron fist
Your forecasting model is another important tool and should provide you with a clear outlook of essential expenses coming down the pipeline. For anything that’s not necessary, carefully consider how you can minimise spending that’s non-essential to operations until you’re profitable.
Ask suppliers for better payment terms
Discuss payment terms with vendors to get the best deal. Where possible, apply for accounts rather than paying cash. Payment terms of 30 or 60 days will help you to better align your customer receipts and supplier payments. This will reduce the need for overdraft facilities.
Evaluate invoice payment terms
Try to make invoices ‘due immediately’ and limit the use of terms that extend beyond 15 days. If possible, employ someone to keep a vigilant eye on receivables and to collect money as quickly as possible. If your terms are 30 days, consider offering discounts for early payment. This will help to bridge the cashflow gap and reduce the risk of late payments.
Maintain a cash reserve
Until you’re profitable, there will always be cash shortfalls. If possible, create a cash reserve for the lean periods. This will help to keep your business on an even keel and enable you to remain focused on your core business and delivering service excellence to your customers.
To read about Pyrotec’s success over the last 50 years, visit www.pyrotec.co.za.