Cashflow management: What is it, and why is it important
Ask the owner of any of South Africa’s 2.6 million small businesses (SMEs) what their main challenges are, and cashflow management is sure to be top of the list.
Yet, the unique set of challenges that SA’s small enterprises face also makes them some of the most resilient in the world.
Regular disruptions caused by load shedding, or strikes, force owners to think on their feet every day, adapting their strategies to survive. Such high economic volatility also makes managing cashflow extremely difficult.
“The silver lining in this situation is that there are proven steps you can take to reduce risk that don’t demand huge amounts of time and expense,” says Tom Stuart, Chief Marketing Office at Lula, SA’s first dedicated SME banking and funding platform.
The best way of viewing cashflow risk management is to see it as weaving a financial safety net for your business.
Cashflow is important in managing risk because it’s the financial backbone of any enterprise. When flowing smoothly, it steers the business through choppy economic waters and also allows it to seize growth opportunities when they appear.
Successful businesses excel at forecasting what will put cashflow at risk. They can identify these risk factors before they occur and use smart strategies to make sure they land in that safety net.
South African businesses must handle unique threats to their cashflow that other enterprises around the world don’t have to, as well as standard market risks.
The global credit gap caused by limited access to business funding is another cashflow issue keenly felt.
Less than 1% of the country’s SMEs had benefited from the country’s COVID relief fund within five months of lockdown according to McKinsey research, a slow roll-out that threatened the livelihoods of 60% of businesses. Many of those who did pull through continue to suffer from a lack of credit options that are vital in keeping business cashflow healthy.
Stuart says available stats show that SMEs will still receive just 25% of total business loans in 2023, a situation that’s led to the rise of dangerous “too good to be true” quick loan options.
“Banks provide an impersonal service because they’re not so interested in the smaller, not so profitable accounts. They build their business models around and channel their resources toward larger corporate accounts.”
In today’s challenging economic climate, fortifying the financial resilience of South African SMEs requires a multi-faceted approach.
Reducing cashflow risk is a vital task for any South African business, but B2B banking services tend to be weighted in favour of large enterprises leaving SMEs with impersonal and ill-fitted solutions.
Lula is an all-in-one cashflow risk management platform that is on a mission to level the playing field for small businesses seeking to mitigate these threats.
“Lula isn’t just a banking platform. We’re a financial partner”, says Stuart.
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