When we asked 400+ medium-sized business owners why they’d applied for business financing, cash flow came out tops. Chartered accountant, business director and social entrepreneur Ayanda Vabaza-Mvandaba shares her insights into how businesses can overcome the cash flow challenge.
Medium-sized businesses form part of the backbone of our country’s economy, contributing significantly to GDP and employment. But despite their importance, access to finance and working capital remains a persistent challenge. Many businesses struggle to secure funding from traditional institutions, often facing high interest rates or outright rejection.
The Small Business Institute (SBI) in South Africa points to cash flow management as a major culprit in SMME (small, medium and micro enterprise) failure, with 70-80% of cases linked to these challenges. This mirrors global trends, with research showing that the vast majority of SMMEs struggle with cash flow management.
Whether it’s access to funding or the know-how to manage it effectively, cash flow is a critical factor in business survival.
As a chartered accountant and business owner, Ayanda has witnessed firsthand the struggles businesses face when it comes to cash flow.
It’s easy to get caught up in theoretical frameworks and textbook calculations when looking at why cash flow problems happen and how to avoid them, but the reality on the ground is far more nuanced. After working with and investing in various businesses, Ayanda has learnt that practical financial literacy is crucial for survival.
What does this mean in practice? It’s about more than financial acumen (although of course, that’s important too). It means understanding the unique rhythms of your business environment. For example:
Knowing when SASSA (South African Social Security Agency) grants are disbursed can be vital for businesses catering to the recipients of those grants. As a Wimpy franchisee, Ayanda learnt the hard way that those dates meant a surge in demand for breakfast – and running out of eggs was not an option!
Aligning stock levels with payday schedules in your area ensures you can meet demand when customers have cash in hand. A business in the CBD might see a spike in sales around the 20th of the month when bank employees get paid, while a township business might experience this around the 15th and 25th.
Practical financial literacy also means being smart with your client portfolio. Relying on a single client or client type is risky. Diversification of clients ensures consistent cash flow throughout the month – if one client pays only at the end of the month, having others who pay earlier can be a lifeline.
These might seem like small measures, but they add up when every cent counts.
By embracing a more granular approach to cash flow management and understanding the nuances of your customer base, you’ll become more resilient as a business and eventually thrive, even in challenging economic conditions.
But, you can’t do it alone. Policymakers, financial institutions, and support organisations in South Africa all have a crucial role to play in fostering an environment where businesses can flourish. This includes providing access to affordable financing, simplifying regulatory burdens, and offering targeted training programmes that equip business owners with the practical financial skills they need to succeed.
By empowering medium-sized businesses, we empower our nation – investing in them is investing in South Africa’s future.
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