Business cash flow & pitfalls

BUSINESS CASH FLOW & PITFALLS

In the fitness world we are told that you need to exercise and eat right to keep your blood flow healthy. In the corporate world finance experts advise that your business must have a sound strategy & good operating model to keep money flowing. But how best do you manage the money once it starts pouring in? 

A good start is to appreciate the difference between revenue and profit. Revenue is the money made from selling your product whereas profit is what is left over after you deduct all the costs incurred in producing the product. One of the biggest pitfalls made by businesses is not drawing a line between the two and thus not using cash in an optimal manner. As an entrepreneur, it is vital that you are aware of all your expenses and have a ranking of them. Examples of critical expenses are tax, rent, utilities and wages. Not paying any of these has an adverse impact on the business. For example, not paying your taxes affects your ability to get a tax clearance certificate and which in turn will not allow you to tender for jobs. Therefore before you can draw any money out of the business to finance another business venture or buy a car for the Director, ensure that all key expenses have been paid. Once these have been met, the money left over is the business’ net profit. 

There must be a plan formed beforehand on how profits are to be used. These are either retained in the business or are paid out as dividends to shareholders. A plan on what portion of profits will be paid out is called a dividend policy; it ensures that profits are not drained out to the detriment of the business. This is vital especially in a partnership set up, to avoid disagreements. The policy is often in the form of a percentage of profits, such as a maximum of 30% of profits may be paid out as dividends.

However, before profits can be paid out to shareholders there are a few matters to consider. These include; will the business have sufficient cash reserves to continue operations? Does the business need to purchase any assets? Are there any plans to expand business operations? The answers to these questions will lead the business owner to have a working capital & capital expenditure strategy, which will guide how cash will be used. Having such a strategy in place ensures that the business has sufficient cash resources to meet its needs and to allow it to grow. A business without a strategy may find itself limiting growth of the business or taking on unnecessary debt. 

This article was originally published in The Business Weekly & Review in May 2018, co-authored by Pako Moshaga & Boitumelo Sejo. 

Selling at a discount

SELLING AT A DISCOUNT

You are for sale. You sell a talking & living product; you. When you are in a job interview, you are offering yourself in the form of your qualifications & experience. A guy asking a girl out on a date is selling her a promise that he is the right partner for her. In each day of our lives we sell ourselves to someone. The key question to ask is; are you selling a good product?

The attractiveness of a product is in two parts; its presentation and the solution it provides. Similarly your appeal is hinged on how you present yourself and what you offer. While you can dress well and smell good, these can both be undone if your self-image is off the mark. Self-image is simply what you think of yourself with regards to your abilities, personality and potential. It is formed over time through the thoughts that others have of you as well as the ones that you have about yourself. You have the ability to form either a positive or a negative perception of yourself. Someone with a negative self-image will lack ambition, downplay their achievements and will settle for less than what they deserve. This internal view has a domino effect that will affect your self-worth, self-confidence and self-esteem. While the reasons for having a negative self-image will seem reasonable to you, they are often an over emphasis of your flaws and mistakes. So while you may be selling a great product, you may be offering it at a discount through undervaluing yourself.

The way to correct the position is to adjust your focus to the positive traits you possess. This is a process of being bold and objectively listing all your strengths, achievements and talents. Asking a close friend what their view is on your strong points can yield unexpected feedback and help you become more aware of good traits you took for granted. The aim of doing this is to shed some sunshine on the gloomy picture of what you think of yourself. Over time you train your mind to stay fixed on these positives. This is complimented by the conversations you have with yourself, while we generally tend to be harsh on ourselves it is key to remind yourself of the positive attributes that you possess. 

As you sell yourself, know you worth and never offer anyone a discount.

This article was originally posted in The Guardian, dated August 2018.