Proper planning can help ensure that the business lights remain on, and the tills continue to ring during holidays.
Planning and managing cash flow should always be a top priority for small and medium enterprises (SMEs), and it becomes more important during busy periods such as long weekends and holidays.
Proper planning can help ensure that the business lights remain on, and the tills continue to ring during holidays.
April is a busy time in South Africa, notes Garth Rossiter, chief risk Officer at Lula, due to school holidays and several public holidays—some of which result in long weekends.
“These holidays can directly impact your ability to trade or to have your invoices paid on time.”
Understand trading days for SMEs
He says this year’s situation is a bit different from previous years, as there is uncertainty around whether the proposed increase in the value-added tax (VAT) rate has been adopted, a move that could also impact SMEs’ bottom lines.
“While we find ourselves in an atmosphere of consistent uncertainty, the best option for small business owners is to make sure they understand exactly what kind of trading days to expect over the next few weeks and to take expert advice on how best to plan.”
Depending on the sector in which the SME operates, they could either see a booming trade as more people are on holiday and thus likely to visit their shops, or on the flip side, they could see suppliers pushing for early payments, or even late payments from clients because they are on holiday.
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SMEs in retail and tourism
“Every industry has its natural ebbs and flows; for example, the building trade is at its quietest over the summer holidays while retail and tourism are often at their busiest over the same period,” says Rossiter.
Because of factors including customers who have purchased on credit and are slow to repay; suppliers who demand payments; salaries and rentals that need to be paid; or general operational expenses, the amount of cash or easily accessible funds that a business has to cover these expenses at this point in the year is generally constrained.
Five tips to manage cash flow
1. Forecast and plan—he says that based on the industry and knowledge of customer habits and business demands, SME owners who predict cash flow fluctuations based on trends can ensure their savings and liquidity are maximised for leaner times.
“During Easter, this planning could have a much shorter-term focus as you navigate the many holidays and long weekends.”
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2. Negotiate smarter terms – Rossiter says this could include offering debtors early payment discounts and extended supplier payment terms with creditors.
“Communication is key. The sooner you talk, the more likely you find a solution.”
3. Leverage financial tools – Invoice financing, where SMEs borrow money using their invoices as collateral, is an option.
4. Secure funding in advance – based on plans and forecasts, an SME may want to apply for funding when the business is in a strong position to ensure a buffer when necessary.
5. Reduce operational costs – he adds that most businesses can trim fat by streamlining daily purchases or sourcing better-priced inventory.
“It may be worth re-examining expenses like banking fees. Lula, for example, offers cost-effective banking solutions in a transactional account that may relieve some pressure.”
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