Failure To Manage Cash Flow Properly Will Shut You Down

By / Published July 16, 2015 | 4:51 am

Dear Entrepreneur, failure to manage your business cash flow properly will shut you down.

A lot has been written and said about the challenges that entrepreneurs and startups face. From lack of capital to lack of loyal employees to stiff competition from multinational firms.

The one thing that has stood out for me as a start up entrepreneur in research and content development has been the challenge to manage cash flows. I believe most of entrepreneurs have no idea what that is, in the first place.

For me, this has been the greatest challenge. Managing the business revenues streams and ensuring that throughout every season of the business all the due obligations are paid on time. It’s interesting how one moment you have closed a KES 1M deal and you feel as though you are on top off the world and the next you can’t even afford to pay for the internet service in the office and employees have not been sorted and your landlord is on your case.

This is a scenario all entrepreneurs have been through and those who are wise learn. Those who are fools, keep repeating the same mistake till the death of their business.

Poor management of your cash flow does not mean that your business isn’t doing well, it just means that you need to find a balance between your revenue streams and your bill obligations.

This is the poison pill that kills an estimate of 57% SMES within their first 6 months to 1 year. Most of the time you will find the entrepreneur is unable to pay salaries for months on end, unable to deliver on key contracts, unable to pay basic bills like power, internet, transport. These form the core structural aspect of any business and failure to manage them well is a sure way to kill any business.

Yes, there are challenges when it comes to clients paying late, when deals are far apart and when tenders require upfront financing before they are paid for. All these significantly affect your cash flow. Most of us fail to manage this and hence the cash flow challenges. For me, personally it’s been the biggest achilles heel. I have lost good talent because of delayed payments and most times, it’s not because the business had money and refused to meet its obligations, but because clients had delayed in making their payments. Funny how clients ensure you deliver heaven but when it comes to payment, the delays erode all the positive aspect. For a long time, this has eaten at and pushing clients sometimes can cost you the contract.

They say mistakes beget experience whilst experience begets knowledge which gives birth to wisdom. After making numerous mistakes and almost killing my brand through rookie mistakes, I have learnt that a business can manage it’s cash flow, eliminate dependency on clients unreliable payment times and be able to develop a system that factors in late payments from clients but honours it’s obligations on time.

Speaking to my mentor Jimna Mbaru, during an occasion where I urgently needed capital to finance a business deal and I was stuck as I had no cash flow, he advised me to look at a better financial partner, he advised me to look at how I can be able to manage my cash better when I had a windfall, he advised me to look for a bank that would be willing to grow with me. Explain to them my business predicament and show them how my revenue streams work.

This was an eye opener for me because I was stuck. I was even thinking of shylock. I mean, we all know our banks don’t finance start ups that do not have tangible assets. For someone like me, we have credible digital properties which are critical Intellectual Property investments but in reality they are nothing to banks.

But listening to an experienced hand and wise mind like Mbaru’s made me realise I didn’t have to depend on clients to pay first for me to honor my obligations. This was a serious revelation in terms of sorting my problem. To make matters better, I thought the problem was unique to me alone. The problem of delayed payments to suppliers, employees was starting to damage me. Until is spoke to Jimna and I realised the problem isn’t unique and that indeed, there is a solution.

Managing your cash flow is very simple. First identify just how much your business is making per month. Then look at your expenses, then talk to your bank to help you manage the critical bills on time at an agreed interest rate per month. Of course the challenge is finding the right bank and I was glad for once to have a mentor.

For me, this is the most critical problem that all entrepreneurs face. Managing cash flow streams and being able to pay their bills on time and as when they fall due.

Life is the only place that tests happen before teaching. I have learnt a critical lesson. Cash management for me, has taught me a lot about people, about brands, about employees and most of all, about character and integrity.