DON’T think because you’re running a business and making a profit that everything in your company is under control.

A shortage of cash in your business can often be far more dangerous than not owing anyone any money.

Theo Vermaak of Converg Financial Training says many business owners look at their current cash situation rather than at their long-term one.

An example would be a business owner buying new computers because they have the cash. But the business owner forgets to make allowances for things such as their biggest client not paying them on time – a mistake which could lead to a major cash crunch.

Other mistakes that business owners make and which could put a strain on their cashflow are:

• Allowing the debtors book to swell. To stay on top of payments which are owed to them, business owners should constantly monitor and follow-up on their debtors book, says Vermaak.

• Overstocking is another way for the business to land up in a cashflow crisis, because effectively cash is tied up in stock which isn’t being sold. To alleviate this business owners should be familiar with their stock purchasing period.

• Not anticipating months where there is a need to make a lot of payments. Vermaak says these could be months such as February or August when provisional tax payments are expected to be made. A business owner should plan for this.

Vermaak says one way to do this is to use the access facility on your bond or vehicle finance agreement. This allows you to put away the expected amount you’ll pay in tax into a savings pool every month.

Often the first thing business owners do when they are faced with a cash crunch in their business finances is to head to the bank to take out an overdraft.

But Vermaak points out that taking out an overdraft is not necessarily a long-term solution to a cashflow problem.

He says this is because the interest rates on the overdraft facility are high. The bank could choose to recall the facility within 24 hours without giving any reason.

He also strongly advises business owners not to use their overdraft facility to cover their day-to-day operational costs such as rent and electricity.

Those business owners involved in contracting should negotiate with their suppliers and try to extend their terms of payment.

Similarly, a contractor should also try to arrange intermediate payments from their client to tie them over.

Khomotso Ramodipa (pictured above) runs a Specsavers franchise in Soweto. She says she used to battle with cashflow problems until she learnt to become more vigilant with her debtors.

Ramodipa says at one time the franchise was making a turnover of R100 000 a month. But she says she was only collecting R20 000 of this amount a month from clients and medical aid firms because of her lax approach to debt collecting.

She says she has since learned to increase her cashflow by printing an age analysis weekly and by following up any bad debt running to over 30 days.

She also knows more or less how many clients she sees every month and avoids tying up all her cash in unused stock.

She does this by keeping a close eye on her sales records and only buying those spectacle frames that she needs.

Contact Converg Financial Training on 031 573 5000 and Ramodipa on 011 980 7208.