Africa Business Communities

Odimbite Odimbite: Bagged Cash - Survival Instincts

Businesses face cashflow challenges either at startup or expansion stage especially in businesses that are labour, technological or capital intensive and must bag the much needed cash. Cashflow issues arise because the amount of free cash available isn't sufficient for the day-to-day operations or sponsor new projects.

Reasons for Cashflow Challenges

- Revenues expected fall far short of projections of the business plan

- Demand for products or services exceeds projections

- Unforeseen expense in labour, equipment or facility that drains cash reserves

- Insufficient cash for operation at the commencement of business

- Granting credits to customers that exceed cash cycle

- Major quality, regulatory or managerial issue that changes company direction significantly

- Tight loan and interests’ repayment schedule

- Inability to obtain trade credits from business partners

- Unexpected expiration or damage to raw materials

Bouncing Back

Businesses succeed because there is executive will. When establishing or growing a business, many things can go wrong but taking proactive reviews daily, weekly and monthly can help. The business executive must review budgets and practices constantly by keeping his eyes on the ball. Revenues, costs, margins, systems and processes should be closely watched. This helps to identify any area of waste immediately and minimize further losses while opportunities are harnessed the more.

Credits should be granted if any, in such a way that suppliers give same amount or length of credits to balance the cashflow equation. Raising cash through organic sources is very rewarding by selling to new markets for cash for a predictable period of time.

It may be useful to borrow. Sometimes getting loans may be tough as most lenders may be cautious. If the business has some loans at start up, repayment of further loans has to be negotiated well to ease up the debt burdens by getting some months of moratorium before repayment of fresh loans start. Some venture capitalists or angel investors may step up if they see potentials of the business. Interest free cash available is a big relief at this stage.

Reviewing the financial strategy adopted helps to ascertain the greatest area of negative cashflow exposure and taking some steps to curtail it will eventually close up leakages.

Working together as a team, communicating openly with the team and persevering brings lasting success eventually.

Odimbite Odimbite is Co-Founder, MetroDelight Foods Limited, Nigeria

 

Do you have an opinion on the business/economic environment in your country and wish to share your views with thousands of business professionals in Africa and international? Please contact andrea@africabusinesscommunities.com with your articles and blogs.

Share this article