What NOT To Do When It Comes To Optimising Your Business’ Cash Flow
Getting cash to flow is one of the hardest yet most essential components of running a successful business. While it may seem overwhelming, it often involves small strategic moves that can mostly be planned for. Merchant Capital has funded thousands of businesses with hundreds of millions of rands in working capital. Through our ongoing dealings with entrepreneurs, we’ve identified several common misconceptions about cash flow. Here’s a list of things you should absolutely not think if you want to protect your business’ working capital:
- "I’m going to let someone else worry about my bookkeeping."
While this might sound appealing, it’s not recommended. No one knows your business like you do. Even if you have an accountant, you should still review the books yourself. Familiarize yourself with every aspect of your finances and consistently monitor your budget against your actual spend. This way, you’ll know when to cut costs or when a cash injection might benefit your business. - "I never insist on favorable terms upfront."
Upfront negotiation may be time-consuming and could slow things down initially, but it's essential for securing future cash flow. Often, products don’t sell as fast as they were originally ordered, leaving you with “cash” sitting on your shelves. By agreeing on favorable payment terms beforehand, you can relieve cash flow pressure while you move your product. These terms may also offer early settlement discounts or bulk purchase advantages. - "I’m far too busy to worry about invoicing."
The day-to-day demands of running a business can easily push invoicing to the bottom of the to-do list. But falling behind on payments can put your cash flow at risk. Paying suppliers on time helps you manage exactly how much your business has left for the rest of the month. Similarly, don’t delay collecting payments from clients—this could hurt your cash flow down the line. - "I prefer to keep all my cash in one place."
Some business owners find it easier to run all their finances—personal and business—through one account. However, this can drastically skew your books and financial projections. It may also tempt you to use business funds for personal use, jeopardizing your cash flow and causing unnecessary stress during critical financial periods. - "The more inventory I carry, the better."
This isn’t always true. Stock-on-hand should be strategic. Know which of your products are selling well and which aren’t worth further investment. By monitoring the sell-through rate of your stock, you can focus your resources on the right products. Continuously ordering the same stock without tracking its performance can leave you overstocked and short on cash. - "I never worry about slow periods until they happen."
A good entrepreneur knows there are peaks and valleys in every business cycle. Rather than being caught off guard, plan for both busy and slow seasons ahead of time. Maintain an optimal inventory level so that you always have enough stock on hand without being overstocked. - "I hate asking for help when my business needs it!"
This is the biggest misconception of all! Every business faces unforeseen expenses or opportunities that require quick access to cash. That’s why it’s essential to have funding partners who have your best interests at heart and can offer guidance when you need funding.
At Merchant Capital, we can help change how you think about your business. We guide you on how to effectively manage cash flow, ensuring that any capital boost you receive is used to seize opportunities without straining your business. From our dealings with thousands of South African entrepreneurs, we’ve found that a merchant cash advance works best for projects that enhance business activities rather than just plugging financial gaps. For small business finance solutions, contact Merchant Capital for a funding option that can truly advance your business and help you grow.
