5 Easy Ways To Start Your Own Cash Flow Revolution In 2018.

Spare a thought for the self-employed who not only have to face the same challenges that salaried people encounter but also have to confront concerns around staff, cash flow, employment laws, suppliers and many other business and commercial worries and anxieties.  The most prevalent financial discomfort many entrepreneurs and employees will experience in January (and maybe even February) 2018 will relate to whether there will be sufficient income to cover expenses. The solution most cash strapped people will seek is to obtain further credit from “financial institutions, family, friends and other fools”. But is the obtaining of additional credit (in whatever form), not only treating the cash flow symptoms rather than addressing the cause of the cash insufficiency?  Unless a revolutionary change in the approach to cash flow is embarked upon, these financial fears and worries will again raise their ugly heads in January 2019.

Principal 1: Identifying the causes of the cash flow challenge?

Lack of budgeting can lead to an ignorance of what amount of cash is required and when it will be required. When enjoying a financial feast one needs to ensure that sufficient funds are left for the famine! If you can’t increase your income, reduce your expenditure is a basic but efficient way of improving any financial situation. Entrepreneurs have the added responsibility to ensure that they have priced their product or service correctly as sales based on a sale price calculated without reference to the actual costs (fixed and variable) can be disastrous. Setting out your financial budget for the next 12 months will help in the preparation of actions needed to avoid a financial numbness next time round.

Inappropriate spending has a very definite impact on cash flow. Some items just need to be bought on credit If you do not have an unlimited supply of money.  If you really need a mobile phone what is the point of paying cash for the phone to avoid the monthly instalment if the cash payment leaves you without sufficient money to pay your rent or mortgage bond at the end of the month? (I am by no means suggesting we need to incur unnecessary debt, debt management is another topic altogether).

Failing to collect your dues i.e if cash is due and payable to you, collect it timeously! Often entrepreneurs do not submit invoices after properly delivering their product or service. This deprives them of the benefit of cash that is due to them. Staff members that do not submit business expenditure claims (for example, entertainment or travel) in terms of company rules will also allow the benefit of that cash holding to be in the hands of someone else.

Principal 2: Accept that a single-handed revolution is extremely difficult to start

To successfully start a financial revolution (from the Latin revolutio, “a turnaround”), you need to involve those people affected or likely to be affected by your change of approach (spouse, staff, family, friends). A revolution is a team effort.

Principal 3: Be an enthusiastic leader and define your financial goals clearly

Anchor the strategy with a specific goal, “if we reduce our monthly expenses by 10% or increase income by 10% per month for the next six months” we can go to….  [pick an incentive, just don’t neutralize the cash flow benefits achieved!] You will need to motivate, support and live the revolution. People will react in different ways, a leader’s communication, managing expectations, challenges and offering of necessary recognition will all go a long way to ensuring that you lead a successful revolution.

Principal 4:  You will need to create and implement an action plan to attain your defined goals

Whether your goal is to increase income or to reduce expenses, a specific plan of action is required, for example, for the next 6 months everyone will “download large data files after midnight”; “switch off the lights in vacant rooms” “plan trips to the shop to avoid duplication of travel costs” or “sell all items of clothing that have not been worn  in the last 18 months”, “sell redundant stock”  are all specific, measurable, attainable relevant and timed (“smart”). Entrepreneurs, however, will need to be careful to not reduce costs in such a way that the quality of their product or service is impaired. Keep the plan evident and relevant by locating an appropriate visual diagram in a visible spot. A graphic of the action plan with details of why it is needed, what is required, where it is needed, who is responsible, by when how it is going to be achieved (see five bare bums and a rugby post above) will assist immensely. Taking into account past failures and successes (if any) and implementing any learned positives and avoiding negatives will assist in avoiding hurdles and benefit any action plan.

Principal 5: Watch and reward your progress.

Maybe a glossy colour photograph of an incentive or reward sellotaped to the fridge door or the notice board will keep you on track to save? It’s a big psychological boost to have visual evidence of your progress towards your goals. For example, if you want to save, say R30 000, using a bar graph and filling in the graph each time the balance increases will probably inspire you to pay even more into the investment to see the balance go up even faster. A little reward each time you meet a milestone along the way is very acceptable… just don’t overspend!

GOOD LUCK!