Talking Business with SMEs – By Frank Tagarira “Manage money wisely and you will get more money to manage” – DR JF DEMARTINI By Frank Tagarira I am sure you have heard these sayings a number of times – Is cash really king? Is cash king in a business undertaking? Cash, whether from a personal or business perspective, is king. Your business can be very profitable but without proper management of cash flow you will soon kiss the business goodbye. Cash is a critical aspect of the working capital of any business undertaking. Today I am, however, focusing on the one aspect of working capital and the most important one – Cash. Without sufficient cash resources how can a business meet its short-term commitments and obligations? The business needs to pay wages, rent, creditors – to mention but a few short-term obligations. Many SMEs fail due to poor cash-flow management. Cash-flow management is a discipline that has to be learned and applied. I have come across many entrepreneurs who have been operating from a bank overdraft for years. A bank overdraft is meant to be a short-term source of financing, and in many circumstances these businesses don’t really need this facility. If only they could manage their cash flow properly then there would be no need to rely on a bank overdraft. There are different factors that contribute significantly to poor cash-flow management by SMEs. Some of the reasons are lack of a debtor collection policy and creditor payment schedule. Many entrepreneurs do sell their goods and services, but there is usually a flawed debtor collection policy. I have come across entrepreneurs who give their clients seven days to pay for an invoice but they will be lucky to see that money even in the next 30 days. This usually occurs when the business has one major client and the greater part of their overall business income comes from one client. Should that major client take long to pay the business, then the SME will be cash-stranded. Because of this, the entrepreneur usually ends up being unable to pay their short-term obligation and creditors, a situation which can lead to forced liquidation and closure of the business. Another reason that contributes to the problem of cash-flow management in SME businesses is the mismanagement, misallocation and misuse of funds. With corporate companies there are usually authorization procedures in any business transaction and no one person has ultimate power to control the company funds. However, with SMEs the business owner usually has all the power to move and allocate funds as they deem fit. This usually opens room for unnecessary excitement and temptation. The business owner usually ends up allocating company funds to household or other personal uses at the expense of the business. I have even seen a business owner drinking and paying a beer bill at a bar or restaurant with his company cheque. This is a very dangerous form of behaviour which could easily cripple the business due to mismanagement of funds. The responsibility of having a proper cash-flow management policy in place lies with the business owner/s. They should make an effort to put such a policy in place. I am sure there are a lot of consultants and companies which offer services such as setting up a proper cash-flow management policy. Should the business owner/s decide to engage the services of a consultant or business offering such services, they should do a thorough background check. It is imperative that a competent financial adviser is consulted. The business owner/s should strive for value-for-money service. Cash is indeed king in a business undertaking, and SMEs are no exception. The responsibility lies with the business owners to put in place a cashflow management policy. be bold, be brave, be excited! – Frank Tagarira is a Business Development Consultant and Business Coach.