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Cashflow management key for SME owners

Cashflow management key for SME owners

By Mbo Luvindao

Bank Windhoek Branch Manager: Specialist Finance Division: Emerging

There is no greater joy than owning your own business. It allows you to work according to your own rules since you are probably doing something that you love. Thus, you are creating, investing and building something that is so much more than a job or a monthly salary.

However, being a small business owner does come with a whole heap of challenges and risks. One of the major challenges is managing your cash flow. This means managing your incoming and outgoing cash.

Whatever product or service you sell in your business, you expect payment from your customers at some point. If you manufacture goods, you need to buy the raw material and machinery while leaving enough to pay rent, staff salaries and your own. The list of expenses goes on.

As a business owner, you need to find ways to mitigate the risk of your customers not paying. If you own a shop, the payment terms may be as simple as handing over the goods as soon as the customer hands over the cash or swipes for payment. However, with services and other types of small and medium enterprises (SMEs), there are more complex payment terms.

Payment terms vary, from payment upon receipt of goods to payment within 30, 60, 90 or 120 days. The larger the organisation, the longer they usually wait to pay you. This can cause severe cash flow constraint for SMEs. If clients do not pay within the allotted time, the entrepreneur will not have money to pay her/his; suppliers, rent, salaries and other business expenses. This may have far-reaching consequences for the entrepreneur and their business.

Often the SME will have to take out new loans at less favourable rates due to their credit ratings or in a worst-case scenario may lead to bankruptcy.

For this reason, SME owners need their clients and customers to pay their invoices within the payment terms as this allows the business to be self-sustainable in the long run.

What can small businesses do to better manage their cash flows?

Monitor your business cash flow regularly and forecast monthly cash inflows (either from sales or services rendered) and cash outflows (salaries, rent, etc.). This allows you to reasonably predict future cash flow challenges.

Budget. Come up with a spending plan for your larger expenses.

How much you expect to spend? When and what is the justification? Enforce payment disciplines by: Asking for a deposit or partial payment on your products or services. So even if your customers delay in paying you, your cash flow is not completely depleted.

Take steps to shorten the period your debtors have to pay you such as by offering a small discount. Communicate clearly your late payment terms and be more effective in collecting outstanding revenue.

Negotiate for better payment days with your creditors (if possible).

Knowing and monitoring you business’ cash flow position will also enable you to make decision such as when is a good time to approach the bank for assistance. Sometimes this is the only option available; so it is best to advise that small businesses should get to know their banker and ensure that their financial records are always in order.


About The Author

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Following reverse listing, public can now acquire shareholding in Paratus Namibia

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20 February 2020, Windhoek, Namibia: Paratus Namibia Holdings (PNH) was founded as Nimbus Infrastructure Limited (“Nimbus”), Namibia’s first Capital Pool Company listed on the Namibian Stock Exchange (“NSX”).

Although targeting an initial capital raising of N$300 million, Nimbus nonetheless managed to secure funding to the value of N$98 million through its CPC listing. With a mandate to invest in ICT infrastructure in sub-Sahara Africa, it concluded management agreements with financial partner Cirrus and technology partner, Paratus Telecommunications (Pty) Ltd (“Paratus Namibia”).

Paratus Namibia Managing Director, Andrew Hall

Its first investment was placed in Paratus Namibia, a fully licensed communications operator in Namibia under regulation of the Communications Regulatory Authority of Namibia (CRAN). Nimbus has since been able to increase its capital asset base to close to N$500 million over the past two years.

In order to streamline further investment and to avoid duplicating potential ICT projects in the market between Nimbus and Paratus Namibia, it was decided to consolidate the operations.

Publishing various circulars to shareholders, Nimbus took up a 100% shareholding stake in Paratus Namibia in 2019 and proceeded to apply to have its name changed to Paratus Namibia Holdings with a consolidated board structure to ensure streamlined operations between the capital holdings and the operational arm of the business.

This transaction was approved by the Competitions Commission as well as CRAN, following all the relevant regulatory approvals as well as the necessary requirements in terms of corporate governance structures.

Paratus Namibia has evolved as a fully comprehensive communications operator in Namibia and operates as the head office of the Paratus Group in Africa. Paratus has established a pan-African footprint with operations in six African countries, being: Angola, Botswana, Mozambique, Namibia, South Africa and Zambia.

The group has achieved many successes over the years of which more recently includes the building of the Trans-Kalahari Fibre (TKF) project, which connects from the West Africa Cable System (WACS) eastward through Namibia to Botswana and onward to Johannesburg. The TKF also extends northward through Zambia to connect to Dar es Salaam in Tanzania, which made Paratus the first operator to connect the west and east coast of Africa under one Autonomous System Number (ASN).

This means that Paratus is now “exporting” internet capacity to landlocked countries such as Zambia, Botswana, the DRC with more countries to be targeted, and through its extensive African network, Paratus is well-positioned to expand the network even further into emerging ICT territories.

PNH as a fully-listed entity on the NSX, is therefore now the 100% shareholder of Paratus Namibia thereby becoming a public company. PNH is ready to invest in the future of the ICT environment in Namibia. The public is therefore invited and welcome to acquire shares in Paratus Namibia Holdings by speaking to a local stockbroker registered with the NSX. The future is bright, and the opportunities are endless.