SMEs are spending more time on cash flow forecasting as tough times hit
JOHANNESBURG – AS THE economy continues to contract, optimal cash flow management and forecasting has become a critical component for the success and failure of small businesses, says Head of Analytics for FNB Business, Dr Yudhvir Seetharam.
“When the economy is not doing well, business owners often spend every minute projecting cash flow to avoid risks,” says Seetharam.
Consequently, SMEs are now spending more time managing cash coming in and going out of the business in order to improve financial performance and eliminate operational efficiencies.
He says keeping track of customer invoice payments while making sure the business has enough stock and revenue to pay employees can prove to be difficult for small businesses that are just starting out but warns that this may not be practical as business owners need to focus on other aspects of their business.
The challenge lies in accurately and efficiently collecting data, analysing it and using the information to make strategic business decisions.
According to Seetharam, predictive analytics tools can be a solution to this problem as they would allow business owners to produce valuable insight from financial data. This would make the process of cash flow management more efficient by eliminating human error and improving accuracy as the systems use proven models and formulas to analyse the information.
“The insight can be used to determine where the business is falling short, allowing management to make key strategic decisions. For example, a business that is facing challenges due to late invoice payments can offer customers discounts for paying earlier and free up cash in the process,” says Seetharam.
Having a positive cash flow balance can make SMEs more competitive, placing them in a good position to take advantage of business opportunities.
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