Watch over your business cash flow

Philip Ainebyona, a resident of Namungoona – a Kampala north suburb, operates a grocery shop.
Ainebyona’s operating capital is about Shs2.5 million which is just about $657. This is the typical size of many Small and Medium Enterprises (SMEs) in Uganda.

Starting this business, three years ago, Ainebyona sold his cow and goats which he supplemented with a small loan from a micro-finance institution. He is required to service this loan with a monthly installment of about Shs80,000.

In his interaction with Prosper Magazine, the father of three-boys, said: “With my little savings from the shop, I enrolled my children in a boarding school to concentrate on their studies.”

Just a month after enrolling his children into a boarding school, effects of the Covid-19 hit the region and the country.

Schools were closed, later there was a lockdown and the economy started crumbling. Sales in Ainebyona’s shop were not spared as they also dived.

“Although government allowed grocery shops to remain open, there still many restrictions. Customers don’t have money to buy stuff because they are no longer working. My rent both at home and the shop are accumulating,” Worried Ainebyona narrates.

With another two-week extension of the lockdown, Ainebyona is not sure whether life will ever be the same again for his business that had picked up. This is because almost all his operating capital has been diverted into managing the family.

So many questions linger, not only with Ainebyona but also other small and medium enterprises in his category who are worried about their cash flow.

Currently, priority is more on survival of the family and the business can be salvaged after the situation normalises.
But for many SMEs still in business, sales are generally low as purchasing power has equally collapsed. But how can SMEs keep up with the situation and manage cash flows;

Mr Nathan Were – Access to Finance specialist at the Boulder Institute of Micro-finance says: “Some SMEs employ people, and with a decline in business activity, the incomes they generate cannot sustain employee salaries and benefits. Most SMEs will need to review how much they pay staff.”

He says depending on the cash flow, they can consider percentage pay for staff as these too need to continue supporting their families.

“Some of the staff benefits will have to be temporarily withdrawn until a time when the business normalises for the businesses to survive,” Were said.

Because most SMEs operate on loans, Mr Were says renegotiating loan repayments with their financial institutions should be done immediately.

“A major cash outflow channel is loan repayments. SMEs will need to take advantage of the different relief schemes extended by lenders to renegotiate loan installments in a way that allows them time to re-pay these loans in the future,” He added.

Experts’ further advice that with most businesses closed, SMEs need to engage landlords and discuss rent repayment plans after the business environment normalises.

“Rent is a major cash out-flow, and many will not be able to afford payments under the current circumstances,” Were shares.

For SMEs with ability to continue working from home, this is the time to make use of the work from home strategy.
“This could reduce the need for office spaces and size and subsequently reduce rent in the future,” Mr Were advised.
SMEs can maintain spaces that are needed by critical staff and keeps everyone else working from home and in the process take up small spaces reducing the cost of rent.

Taking advantage of social media and delivery options to continue making sales is another option SMEs should consider to stay afloat.

Were says: “This can help bring in some cash to keep the business running until the situation normalises.”

Mr Newton Buteraba, the chief executive officer-House of Wealth, says companies should have an emergency fund.
“Companies or businesses should have it as a policy to keep a part of the money they make for the rainy day,” he shares.

Companies can still be in business but aiming at not eroding their reserves to help them save.

Managing credit

Managing credit is the other way SMEs can hold onto cash to pay salaries, rent and other expenses.

So, where should the SMEs keep their money in case the crisis happens?

Since no one is sure about tomorrow, we must all save for the rainy day.

“They money you have on the side should be divided into two; for the rainy day and saving for investments. If you struggle in the middle at least you can have cash somewhere else,” Buteraba added.

Grow the business to expand into branches. This will help you survive during the tough times.