New year planning vital

ENTREPRENEURS running small and medium-sized business are warned to watch out for cash flow traps in the first two months of a new year as these can sink a business if they are not well managed.

As businesses recover from the effects of the festive break, some of the pressures they encounter could emanate from external factors.

These could include debtors wanting to be paid while cash levels are low.

They could also experience high demand for goods from clients while stocks are low because manufacturers haven t yet begun production ’ of the commodities that are required

These are some of the challenges entrepreneurs could now be facing, as a new year always brings with it additional and unique challenges to overcome.

So says Christo Botes, property investments director of Business Partners, a risk finance company and co-sponsor of the Sanlam-Business Partners Entrepreneur of the Year competition.

It might not always be “possible to avoid the realities of a business cycle, but it is possible to plan and manage the effects of this difficult period,” he says.

Botes highlights some of the key areas entrepreneurs need to pay special attention to during the first two months of a new year.

The bottom line for small “businesses will not be as high as a normal trading month due to less sales and transactions taking place,” he says.

Stock levels at the warehouses of wholesalers and manufacturers might be low due to manufacturers being closed for three weeks over the festive season, which could limit supplies to retailers.

This will then have a domino effect on small businesses sales as there isn t ’ stock to supply to their customers.

Botes says that during the month of February, small businesses also need to consider upcoming tax deadlines. Many businesses have “February year ends for accounting purposes. They therefore need to “make their second company tax payment,” he says.

Individuals, including business owners, are provisional taxpayers in their individual capacity and therefore need to also make their second provisional tax payment by February 28.

This can potentially lead to cash flow pressures and have additional implications for both the business and the individual, as the business ’ profits are not always reflected in its cash flow.

This could be, for example, clients having not yet paid for the goods and services they have bought from the business.

Botes says that payments to creditors could be very high over December and January as businesses often purchase more stock than usual to cater for the spending spree of shoppers from mid-November to the end of December.

In January or February, “these creditors move into the 30 or 60 days category and become due and payable,” he says.