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Control your Cash before it controls You!

The biggest threat to growing businesses is cash management. It's not glamorous or exciting, but keeping control of your cash is essential to ensure that your growing business doesn't self combust.

Firstly, let's look at three reasons why a growing business can have cash issues:

  • As businesses grow, they need employees, and these employees don't hit the ground running; they need training and getting up to speed, so there can often be a lag between income and increases in payroll costs.

  • Stock-based businesses need more stock as they grow. This can take the form of buying more of the same lines as they re-order and expanding the range of stock held etc. Inventory costs money, and suppliers have to be paid (obviously!), but if the stock is grown too quickly, then the average time taken to sell lines gets longer and more cash is tied up in stock rather than in the bank account.

  • As businesses grow, they often need more space - a move from home into offices or warehouses is usually required, which costs money, from deposits to decoring space, etc. There is often reasonably large cash spend without a noticeable return.

But what can you do to keep track of cash? Well, keeping on of your finances is one key area to focus on:

  • Not all employees will be income-generating, but you need to ensure you have the right income level to cover your employee costs, so looking at employment costs as a percentage of sales will help track that these amounts are OK and you aren't becoming overstaffed.

  • Knowing how much stock you have, what is selling (or not) and what "coverage" you have (i.e. you have R50k of stock, and this is the equivalent of 2 months of sales, then you have two months stock coverage) but also knowing how these are moving month on month. Are your stock levels growing in line with your sales etc.

  • When you first move from being home-based to having an office or warehouse, the temptation can be to move somewhere you just fit into. Still, it's worth looking at whether space will last you for the next three years (for example) rather than just the next 12 months as each time you have to move distance, you incur costs.

And then there's the little spending - as always, check your standing orders and direct debits regularly to make sure that you are still using and still need all of them and that you aren't spending money on a subscription you no longer need or have time for.


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