Mother Hub­bard’

Finweek English Edition - - BUSINESS -

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

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