The experience of old Mother Hubbard who was, in 1805, unable to feed her dog (at least insofar as the f irst verse of the nursery rhyme is concerned) seems to repeat itself in modern day small business, as small-business owners cry that their greatest business challenges are “cash f low” and the “inability to access capital”.
There is no doubt that proper and regular financial management is crucial to the success of entrepreneurs, and even though this management can be contracted out to qualified professionals, it’s imperative for entrepreneurs to have a basic knowledge of proper pricing, money management and cash collection procedures. The correct application of financial principles and understanding the causes of cash-f low challenges go a long way to ensure business success.
Throwing more capital at cash-f low challenges is not always the solution. What is the point of continuously treating a symptom and not the cause? Consider the following common causes of a lack of cash f low before resorting to a loan application for (more) working capital; 1. Lack of sales. Is this reason for insufficient income, caused by a lack of sales training, outdated products, lack of stock, or lack of marketing or sales activity management? 2. Incorrect pricing of product or services? Using competitor pricing without a proper analysis of your own particular costings can lead to selling prices that are inadequate for business survival. 3. Inefficient collection of monies due. Entrepreneurs are notorious for not getting invoices into the hands of their clients timeously. This inefficiency is further compounded by not following up clients for money that’s due by them. 4. Incorrect usage of available cash flow. Money collected is used inappropriately (caused by, for example, a lack of f inancial knowledge, lack of available f inan cing). So, for example, we f ind