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BUSINESS FEATURE
MANAGE YOUR CASH FLOW
AND GROW YOUR PROFIT
In business it’s not uncommon to have millions of rands worth of turnover without
generating adequate cash flow to support business growth. It’s a well-known fact
that growth in any type of business consumes cash, which according to Verne
Harnish, is the first law of entrepreneurial gravity.
The three laws of entrepreneurial gravity according to Verne are: • Stop saying that we are a seasonal business and “it is just the way
1) Growth eats cash – a growth business is hungry for cash it is”. Know your turnover break-even point and ensure you hit
2) Buy low and sell high – ensure you buy right so you can achieve that number every day, every week, and every month.
the gross profit margins that can sustain the business • Run your available cash report daily – and understand why it
3) Visibility equals credibility – your business must be visible, and this has changed.
brings credibility and profitability. • Manage your cash gap - increase supplier payment terms and
send your invoices out quicker, don’t wait for month end.
So, what is entrepreneurial gravity? This can be defined as “those • Understand customer payment cycles, especially at year end
unavoidable forces” that draw on a business owner or entrepreneur. and time your billings accordingly.
• Shorten product and service delivery cycles – measure your
There is a saying in business that states: “Turnover is vanity, profit work-in-progress.
sanity and cash is king” and if you are serious about fixing your cash • Get key customers to pay sooner or implement a COD policy.
flow, I suggest that you read Alan Miltz’s Cash Flow Story or Instant • Reduce your fixed costs – most of the businesses I start to work
Cash Flow written by Brad Sugars. with can reduce their expenses and cut out some ‘nice-to-haves’.
• Don’t replace your staff resignations immediately, critically
So why is the management of cash so important? Well, think of it evaluate the need for the role and whether it can be automated,
this way: cash is to a business what fuel is to a car. If you run out of eliminated or re-allocated amongst the team.
fuel, the car stops. It must therefore be your primary business goal • Get customers to pay a deposit or bigger deposit when your
and focus as a business owner to keep fuel in the car or a healthy business has a long manufacturing cycle and high cost of goods
cash flow. sold.
• Brainstorm three ways to immediately reduce your cash cycle
Yes, you can have a company with a healthy profit and still run out of and increase your operating cash position.
cash, because cash flow is the sum of income and expenses realised.
Now is the time for action! Remember nothing changes if you
Do I need a cash flow forecast? don’t take action.
You certainly do! If you would like the support of a business coach on your path to
managing your cash flow, we are happy to help.
Your cash flow statement and forecast differ from an income
statement because it tracks the actual flow of money into and out To learn more about building a commercial profitable enterprise,
of your business. contact me on 082 320 6072 or send a private email to
bertweenink@actioncoach.com
It starts with your ‘beginning’ cash – money in the bank, add to it
your receipts or funds that come into your business and subtract I invite you to attend one of our training webinars. Go
disbursements, funds that flow out. You will then either have a to www.bertweenink.com and check out my upcoming
cash surplus or a cash deficit. Remember your accounting software webinars or email me at bert@bertweenink.com for
should be able to give you that picture. details on our next training webinar.
It is possible to dramatically improve your cash position whilst Yours in business,
growing your business and here are ten things that you can do or act Coach Bert
on to improve your cash position. n
Landscape SA • Issue 111 2022 23