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 SMEs urged to prioritise cash flow in 2019

 Written by Ben Bierman, managing director at BUSINESS/PARTNERS

 The South African Reserve Bank (SARB) recently increased the repurchase (repo) rate by 25 basis points to 6,75 percent. In light of the negative impact this will have on the cost of debt, and given the ongoing lacklustre economic climate, South African small and medium-sized enterprises (SMEs) have been cautioned to buckle up for what is predicted to be a challenging year.

In order to be prepared for what may face them in 2019, business owners are advised to dedicate the next few weeks to the planning of budgets and cash flow, which are both crucial tools required for the survival of any business – especially in challenging economic times.

A cash flow statement is a vital management tool that should be referred back to constantly, and not only on an annual basis. This is because the control of cash flow, adherence to payment deadlines and the management of creditors and debtors are all fundamental aspects that determine the success of a business.

As such, here are four simple tips that entrepreneurs and business owners can follow to stay on top of their finances in 2019:

1. Keep it accurate

Entrepreneurs are often eternal optimists, even when it comes to budgeting. Overestimated income can however be as harmful as having no budget at all, and can provide a false sense of security. As such, one of the best ways for business owners to project realistic income is to base figures on historical sales data, and ensure that deviations from such data are based on realistic factors.

2. Refer back to historical financial statements

Instead of only conducting an annual financial review, entrepreneurs are advised to refer back to their historical financial statements on a regular basis. This helps to predict sales dips and rising expenses before it is too late. Regularly updating a budget and a statement of cash flow enables business owners to keep an eye on where money is spent, and allows them to cut back where applicable.

3. Simple is better

Budgeting need not be a complicated exercise for business owners and a simple spreadsheet is more than enough to manage an annual budget. Although employing an accountant to draw up the financial statements is an advantage for some entrepreneurs, they should take care to ensure that they know exactly what the accountant is doing at all times and that they understand the statements. 

4. Plan wisely

Drawing up a realistic budget helps business owners plan for challenging financial times, and provides guidance for when there is extra cash available. Plans on how to cope when the business suffers an unexpected knock in sales or income should also be included.

As business owners prepare for an uncertain year ahead, it is more important than ever to keep a tight hand on budgets and cash flow. Without a realistic and well-managed budget and cash flow, a business is much like a boat without sails – lacking direction and headed nowhere.

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