How to Manage Cashflow Effectively

When the discussion of managing financials and overheads comes up, there’s often mixed reactions. It is an unavoidable truth that the language of business is numbers; the University of Hertfordshire showed in a study that one of the biggest causes of business failure was a lack of good, “numbers-based decision-making”. The better your and your team's understanding of the numbers, the easier it is for you to succeed.


There is another element of the money side of things that needs to be considered: Do you have enough? And I don’t just mean in your bank account - though that’s nice. What I mean is: does your business have the financial fuel it needs to grow?


There are your regular expenses, such as rent, salaries, etc. You need to have enough money to run the business and meet your operational breakeven. However, if you want to grow, what sort of things would you need to invest in? Some thoughts are:

1. Marketing: investing in new channels, campaigns, or mediums
2. Hiring new staff, operational, sales or otherwise
3. Rebranding
4. Capital Expenditures, such as getting new assets, moving location, or so on

All the above require money to be invested (note I say “invest”, not “spend”. It’s easy to spend, but hard to invest). Is this money available? If not, what options have you considered to raise it?


The next thing to consider is: If or when you need an injection of funds, how you’re going to get it and what it’s going to require. There are several possible ways to raise money:


Loans: This is the most straight-forward, but often comes with the highest cost.
Investors: This is usually the most complicated, and comes with the benefit that often the investment doesn’t need to be paid back. The added consideration is you lose a share of the company. If it means growth, it’s worth it. As Jay Samit says: I’d rather have half the ocean than the whole of the lake.


Personal injection: This is often the easiest to arrange…no bankers or investors to convince (unless you have a spouse whom you need to win over!). This does come, however, with the highest “opportunity cost”, so proceed with caution.


Discipline: Sounds like an odd one to include here, but it can work wonders. One of the things we talk about in Money Mastery is setting up a “Profit Budget” to fund growth. This is an account into which you put a certain amount every month, and it has a fixed target amount and target date. The opportunity cost exists here too, but you don’t need to get anyone on board, and you don’t lose any part of the company. This can, however, be the hardest to stick to…which is why so few people do it.


This is quite an in-depth topic, and over the next few posts we will cover some other key areas of business financial management. Get this aspect right, and business becomes a whole lot easier. Get it wrong, and you risk stunting your growth.

Whether you're looking to improve the way you collect outstanding receivables to weighing up the different options for raising capital, if there is something you’d like to discuss that is unique to you, drop us an email: hello@kaizen.ae.