Read this first (then my blog post): Ensure your cash flows in faster than out. Fill your email address in the blank space at the end of this post in confidence and I’ll send you, “The 10 warnings that your business needs a cash flow tune-up”.
The huge drop in the shares of South Africa’s biggest unsecured lenders after mounting investor fears of a bubble in the unsecured lending sector should be a wake-up call to small business owners. The local banking sector’s total gross unsecured credit exposure increased to about R441 billion in the quarter ended December 2012, which gives one an idea of just how big the problem is.
Lenders have shifted into high gear to implement risk reduction measures, increase provisions for credit losses, assist customers with rehabilitation and call in non-performing loans as soon as possible as well as writing down bad loans.
Consumers are so over borrowed with these big lending companies that cash will be tight all round. The knock-on effect is that all businesses in the front lines of the economy need to manage their cash more closely, know their customers better as well as monitor purchasing power in their local communities.
Small business owners need to watch their cash flow very carefully with lenders becoming more jittery in this economy. For example, your customers who most likely are paying you later and later will cause a shortfall in your cash that you won’t be able to necessarily fill with a short-term line of credit from your bank. Suppliers too may well want deposits upfront and demand faster payment.
Many business owners don’t realise that they may be profitable but if they run out of cash they can send their business to the graveyard.
It’s easy to feel a little smug if yours is a strictly cash business. That’s fine on the income side of your cash flow statement but many a business has become insolvent because of two entities – lenders and creditors or suppliers. With banks tightening the screws on lending and even calling up loans, small business owners could be squeezed for cash on the expense side or outgoing cash flows.
In this rocky economy, small business owners need to turn their assets over quicker, leverage their suppliers and financing sources and manage their balance sheet. Current assets need to be financed with current liabilities, for instance, and long-term assets should be financed with long-term sources of capital (whether long-term loans or equity).
To ensure that your cash flows in faster than out, fill your email address in the blank space below to find out in confidence and for free “The 10 warnings that your business needs a cash flow tune-up” now.
Stay inspired
Chesney Bradshaw
