Managing cash flows as a small business post-Covid-19 in Uganda
Uganda’s economy is driven by the informal sector that primarily comprises micro, small and medium enterprises collectively. These constitute 90 per cent of the private sector, which employs approximately 2.5 million people as per the ministry of Finance publication on the 2017-2022 national strategy for private sector development.
As the country embarks on a phased easing of the lockdown, entrepreneurs will be grappling to ensure the sustainability of their businesses through this disruptive cycle. One of the key business drivers that will be critical to sustainability is cash flows post the Covid-19 pandemic.
Cash is the most important liquid asset to the daily operations of small and medium enterprises. In this Covid-19 era, small businesses will need cash to meet their transaction needs as well as cushion them against fluctuations of cash inflows from sale of goods and services.
Therefore, it’s paramount that small business owners adopt a number of cash management practices to preserve their businesses. These practices range from cash budgeting to long-term cash forecasting as discussed below.
First, small businesses ought to prepare cash budgets to establish the financial position of the business. In this case, a business owner projects his cash needs and plans for any short-term financing if required. To apply this practice, it’s important to assess the business cash flows for the past six months to establish the correct financial standing of the business.
Where a business does not have adequate financial records, which is common with many of our small businesses, the receipts and payments method would be the principal method of short-term cash flow forecasting. This can be done by reviewing receipts and payments.
Small businesses that are hard-pressed with a liquidity crunch should incorporate a weekly cash forecast, complemented with a daily review. They should also seek out favourable credit terms as they pursue a conservative credit policy. Small businesses should focus on cash payments as the leading transaction preference and rigorously pursue outstanding payments.
Business owners can opt to re-negotiate payments particularly with their largest creditors such as financial institutions and landlords as a way of managing their cash flows to ensure that the business preserves its working capital. In this unprecedented crisis, creditors are hinged to understand and be empathetic to the continuity of their stakeholders’ businesses.
Small businesses should also be cognisant that Bank of Uganda issued guidelines on credit relief and loan restructuring measures for all supervised financial institutions. Through these guidelines, business owners can negotiate with their respective bankers to restructure their loans up to 12 months and effectively manage their cash flows.
The small and medium-sized businesses through the receipt and payment method of cash flow management could effectively optimise business expenses to build cash reserves for working capital.
To manage cash flows, business owners need to cut down expenses that are not core to the business. It is, therefore, advisable for business expenses to be categorised as critical, discretionary and unnecessary.
Ms Kulabako is a legal & tax consultant
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