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Cash flow is king: managing your SME’s expenses to avoid going under

It is widely accepted that cash flow is an SME’s ongoing operational challenge. When revenue does not come in on time after invoicing, and suppliers and creditors need to be paid by month-end, SMEs can easily run into financial trouble.

You need to draw up a fixed and variable expenses vs. income spreadsheet and truly understand where you may be falling short. If the latter is lower than the former, it’s time to remodel your business and cut costs where you can to, at the very least, break even but preferably turn a profit. So says Karl Westvig, TymeBank’s Chief Executive for Business Banking.

Time is money

Depending on what type of product or service you offer, smaller businesses may have to contend with 30- , 60- or even 90-day payment terms, all of which can destabilise a small business. Which is why some smaller businesses often forgo working with larger companies that insist on these lead times, thereby losing out on potentially lucrative contracts.

Even if income comes in late, PAYE and VAT must still be paid on time, adding further pressure to an SME’s bank balance. PAYE is payable by the 6th of each month, while – if you are generating more than a R1-million in revenue during your financial year – VAT payments occur every second month.    A note: never use your VAT as cash flow. Put it in a separate account like TymeBank’s GoalSave and do not touch it until you have to pay it to SARS.

“Paying SARS is non-negotiable, of course, and you will incur interest if you delay payment. Work closely with your accountant to ensure you know exactly the amount you need to cover before it’s too close to pay day,” explains Westvig.

Be smart about funding

Should you have issues with settling your bills – suppliers, employees, SARS, etc. – you may consider applying for business banking support in the form of working capital funding. Retail Capital, a division of TymeBank, offers SMEs access to funds online or via an app.

“But there is a caveat,” says Westvig. “Limit the amount of working capital funding you need and avoid relying on it month after month. Instead use it only for emergencies or you could end up in a situation where you need to borrow more money to pay back what you owe. This can easily become a debt cycle.”

Where it is wise to tap into SME business funding is when you are looking to expand and grow your business, says Westvig, as this is a good investment. “You may need new machinery, extra staff to manage more work or a fleet of vehicles for deliveries. Every business has its overheads. As such using SME-geared finance to increase your business’s performance and growth is never a bad decision – just manage the cost to borrow and pay it back as soon as possible.”

Keep business and personal separate

Lastly, never use your personal account to run your business’s income through – even in the very beginning. A dedicated business bank account will give you a better picture of your business’s financial situation, and it makes filing your tax return simpler as you can easily track business income and expenses. The TymeBank EveryDay Business account is also linked to your personal account profile, making it easy to see which money is yours and which belongs to your business. It’s a smart way for VAT and non-VAT registered sole traders to bank. In addition, most business bank accounts typically offer tools and services to help manage your business – for instance with a TymeBank EveryDay Business account you can make bulk payments (up to 30 different accounts in one go) to settle your monthly bills and pay salaries.

“Avoid getting ahead of yourself by buying too much too soon, regardless of your initial success. Rather have a firm grasp on your overhead costs and income and manage it accordingly. There are plenty of accounting packages out there like Sage and Xero; use them as they will help you manage your money as the owner of a small business,” concludes Westvig.

TymeBank is a proud National Partner of the NSBC

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