One of the discussions we had with the chairman of association of microfinance banks in Nepal was on loan repayment. He maintained that many lending institutions in his country were grappling with non-performing loan books, a scenario that affects some banks in Kenya. This, he clearly said can be attributed to cash flow issues with most small business particularly with economic downturns that have been experienced lately.
Having a consistent supply of cash is a problem that every businessperson faces or at least must be prepared to face. A business has many needs that have to be met stemming from operation or even expansion. Operational costs will involve expenses attributed to utilities like power, water and occasional licenses for doing business in a certain area. An example is an airline that pays the regional aviation authority for every landing at the airport and usage of services.
Rent and wages normally take the largest share of resource allocation. Your business has to be located in the best premises depending on customers targeted, that comes with a premium payment in terms of rent. To attract the best talent in order to deliver company strategic objectives, a firm has to appreciate paying the best salaries or rather compensation commensurate with experience and skills.
Expansion is key to growing a business. To create convenience and access to products and services, a business person explores the channels of distribution appropriate for the customers. Whether it is online outreach or brick and mortar to create physical presence, all these come at a cost. But expansion and operational cost are not the only expenses, there are a myriad of avenues that money is spent to ensure smooth flow of business process.
There are two very important aspects that as a businessperson, you should consider to ensure a constant flow of cash.
1- Revenue generation
It is advisable to create many avenues for generating income in a venture, so that if one stream is affected, the rest keeps flowing. Overreliance on one income stream poses a risk that is not easy to mitigate. Take for example a tours company that fully focuses on international tourists. In the advent of terrorism and travel advisory issues, that stream might be hugely affected leading to loses. The same firm can have a function that creates products for local tourism and reap huge benefits even in slumps often associated with these travel advisories by key countries where visitors come from. So creating a number of income streams for your business ensures a constant supply of cash.
2- Cost management
This is very a very important aspect. Cost management does not mean you don’t spend, because literally people spend money to make money, either in marketing or other needs. However placing caution to ensure one does not spend unnecessarily should be a priority. For example, why hire 20 people to do manual maintenance of data while you could outsource a basic system that does the same work at half the cost.
As a businessperson, the above two create a balance that ensures a constant supply of cash, and hence none of the processes are derailed for lack of money. Therefore, reexamining the status of revenue generation against cost management will help you put your business on the right track.