A slowdown in the South African economy has small businesses on the ropes.
Apart from a challenging macro environment, statistics reveal that startups and SMEs are having to wait a lot longer for clients to facilitate payments – and that means there is more money going out than coming in.
According to a report unpacking the data from the latest Business Debt Index (BDI), small businesses are having to contend with record high debtor delays. On average, customers are taking 66.4 days to pay companies, compared to levels of below 60 days just 12 months ago.
Without a steady income flow, it is hard for any business to survive. Here are 6 best practice tips for handling a cash flow crisis like a pro.
Re-asses the business plan
A business plan is the blueprint for how a business is run.
By focussing on key areas, like operations, processes and expenses, and job costing individual categories, it is easier to identify where the cash flow crisis stems from, and how best to resolve it.
Job costing pinpoints the products and services that are profitable, and those that are not. When armed with fact-based information, the business plan can be adjusted to prevent a repeat of the crisis, and strategies implemented to sustain cash flows.
The easiest way to allay a cash flow crisis is to have money coming in to the business.
Get creative about fast-tracking receivables by incentivising customers to pay invoices quickly, or asking clients for a deposit, or part payment, upfront.
Consider sending out invoices more frequently. It can be when a certain stage of a job has been reached, or as soon as the products or services have been delivered.
Always hand overdue receivables over for collection, and ensure customers can settle invoices easily and conveniently, either electronically, or via a mobile app or credit card.
Try and cut back on non-payroll business expenses, such as electricity, travel, entertainment and employer perks.
If you own your business premises, consider consolidating office space, and renting or selling off the excess.
Look at ways of reducing the payroll, without retrenching staff. Think about cutting overtime altogether, and moderating work hours across the entire company.
Sell non-core assets
As hard as it may seem, selling off assets that are not essential to the running of the business, or are no longer in use, is an effective way of raising money.
Liquidating obsolete tools, equipment, furniture and accessories can breathe new life into a business, and get it back on track.
Chat to suppliers, and see whether you can re-negotiate the terms of the contract. It may be possible to delay payments, or arrange a repayment plan of sorts.
Whatever you do, ensure you are strategic about who you pay with the money you do have, and employees should always be on the top of the list.
Raise finance against business assets
Borrowing money secured by a business asset is a fast, efficient and affordable way of raising capital.
The key advantage of this type of loan is that the asset is not permanently lost to the business. It is merely held in safe-keeping until the capital amount, plus interest, is repaid to the lender.
Lamna specialises in providing short term asset-based loans to small businesses in South Africa and Botswana.
We offer two user-friendly options:
- cash loans backed by business assets, such as real estate, vehicles, boats, artworks and collectibles, and
- bridging finance secured by the sale of a property.
Client borrows R10,000 for 90 days.
Total Cost of Loan
Fixed rates range from 36% to 60% APR and payment options range from minimum 3 to maximum 24 months. Apart from the initiation and monthly fees shown below, the only additional fee is credit life insurance if the borrower does not have this already.