Managing Cash Flow Prevents Failure

Established in 1974 to represent the self-employed, the FSB changed its structure to become a representative body for small and medium enterprises (SMEs) in the UK.

In an interview broadcast yesterday on the British Broadcasting Corporation’s (BBC) business news, the FSB pulled no punches.

FSB reported that a high number of business failures in the UK are directly attributed to late payments by the government.

The FSB also fingered the private sector, saying that corporates and large firms are also tardy when it comes to paying SMEs for goods and services.

As an aside, this week on Tuesday, the BBC marked 100 years of broadcasting. An amazing achievement by this state broadcaster.

Oldies like me grew up being entertained by BBC comedy and music shows. It was also our main source for international news and staying in touch with world affairs.

As for the negative impact on one’s business, it is not only SMEs in the UK that are treated so shoddily by their government and large firms when it comes to being paid.

Disturbingly, it happens in far too many other countries, including Namibia.

Businesses fail when the owners fail to manage cash flow.

Empirical evidence reflects that globally, this is one of the top reasons for the demise of SMEs.

Money is the lifeblood of big or small businesses, but larger and more established firms will have accumulated reserves over the years to cushion the impact of delayed payments.

SMEs mostly operate on the edge, are generally undercapitalised and rely on swift payments to circulate cash thereby meeting commitments.

The importance of regulating cash flowing into or out of the business bank accounts must not be underestimated.

Small wonder then that cash flow projects are so important for banks, lenders, and funders in the assessment of overdraft and loan applications, and bridging finance to fund tender inputs.

Applications to a supplier for an account is subjected to similar rigorous assessment.

Banks, lenders, and funders are more interested in the business’ ability to generate and manage its cash flow to service the facility, than in revenue projections.

To use a water tank as an example – water must be added to the top to replenish what drains from the bottom. Or else the tank will be empty.

Prudent management of its cash flow positions a business to pay bills, provide for growth and to cover operations during quiet periods when there is a sales dip.

In short, cash flow is as important to SMEs as is making a profit, if not even more so.

The expectation is for SMEs to deliver quality service by supplying goods and providing services on time.

So, get real, officials in the public sector and managers of corporates and large firms, pay SMEs on time every time.

Don’t find feeble excuses such as the invoice was misplaced – provide a copy.

Or the person who authorises payment is on leave.

* Reach Danny Meyer at danny@smecompete.com

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