There is no doubt that 2016 to date has been a year where economic downturns, interest rate increases and doom and gloom have been the watchwords. Although all these factors will have an impact on small businesses, they don’t necessarily mean that businesses can’t grow and move forward.
After all, when a business is reduced to its most basic, it is all about managing money coming into and flowing out of the business and ensuring that you understand the market you serve.
Manage your cash flow effectively and sell what people want and the results are a thriving business - despite difficult economic conditions.
The most important thing to master is your business’s cash flow.
Achieving a balance between “cash-in” and “cash-out” can be especially challenging if stock has to be purchased and held before it can be sold. A good example would be the clothing industry where clothing is purchased one season ahead of actual sales activity taking place.
But, cash flow can be optimised, avoiding the possibility of having sleepless nights over the economy. Things to put in place include:
- Making sure that the product or service you offer is based on what customers want, rather than what you like. Effective marketing and business development demand that stock is sold as quickly as possible so that cash comes into the business.
Contrary to popular belief, the crucial time to get marketing done is when times get tough. In the age of the internet, small companies can compete equally with much larger corporates.
- Opening a new sales channel via the internet could mean better sales.
- Look to your existing clients and think about what you can do to increase sales to them. Offering them special discounts, a loyalty programme or deliveries could act as sales boosters.
- Using a database of customers, to keep your loyal customers up-to-date on what you offer. An e-mail newsletter or website that is kept up-to-date is great for keeping everybody informed and encouraging foot traffic in-store.
- Ensuring that employees are trained about the benefits and selling points of products. If customers are well informed about your products, interest can be turned into sales.
Getting to the ideal state of ensuring that money is flowing in, rather than out of the business, can be achieved if several steps are taken. These should include:
- Working to a realistic business budget.
- Constantly reviewing your costs. Find ways of reducing costs by making early payments to suppliers who offer a discount for payments made in less than 30 days. Where you can, negotiate discounts with suppliers.
- Keep stock holdings to a minimum. Stock on shelves is idle money.
- Check to see what sells well and what doesn’t. Reduce stocks of slow selling items and buy good sellers in bulk - that way you could benefit from bulk discounts and increase your margins.
- Pay carefully, by choosing which bills to pay. Pay employees first, and then pay crucial suppliers next. Regularly review when you expect to receive money and pay it out.
- Know when your customers pay you, and when they fall behind so that you can take action to get money in.
- Consider offering discounts for early payment.
- Ask for deposits and then order goods required. You can put the money to good use while you fulfil the order.
- Examine your supplier and customer credit terms. As an example, it simply doesn’t make sense to pay suppliers in 30 days and then offer customers 90 days credit.
- Don't send out invoices at the end of the month. Aim to send them as soon as the job is complete.
- Consolidate your loans. Review the rate and terms of each loan and then, if you can, consolidate them into a lower-interest account.
- Compare leasing and financing options. You may also be able to save on maintenance costs if you lease rather than buy equipment.
Ultimately, the key to better sales is your people. Devising a rewards and incentive programme based on sales volumes for employees can work wonders.
Creating sales targets and linking them to personal inputs that are rewarded with prizes can keep the workplace happy and sales ticking over in difficult times.
The one advantage that entrepreneurs have is that they are passionate about their businesses. It is this passion and a determination that the business will succeed and, of course, planning and financial discipline that will see your business growing and moving successfully on into more prosperous times.
* Ethel Nyembe is head of small enterprise at Standard Bank.