3 S’pore Entrepreneurs On How Cashflow Keeps Their Businesses Afloat

The Covid-19 pandemic has sounded the death knell for many companies in various industries.

According to figures from the Accounting and Business Regulatory Authority, shutdowns in the retail sector hit a 10-month high in September 2020, with 457 companies going out of business.

For many of these companies, the inability to maintain operations due to lack of funds was the primary reason for their demise.

The Covid-19 pandemic has thus highlighted the importance of cash flow to keep businesses afloat.

The importance of having a strong cash flow

xero cash flow management
Image credit: Ravel Innovation

Cash flow refers to the money that flows in and out of a business in a month. Cash enters a business through customers or customers purchasing products and leaves the business as an expense.

If more money comes in than goes out, a business is deemed to be in a “positive cash flow” situation. However, if the reverse happens, the company risks going bankrupt if it cannot acquire new funds.

Maintaining a positive cash flow is good for a business. It enables top-level management to make better plans and decisions, understand where the money is going, protect business relationships and identify the right time to grow.

In contrast, the lack of liquidity is one of the main reasons for the bankruptcy of small businesses.

Ricardo Sentosa, co-founder and CEO of Venuerific, told Vulcan Post that he learned early in his career that cash flow management was “not only a lineage of the company’s survival, but also a key growth factor for the company ”.

He added that after only six months of operation, the company found itself in debt of S $ 70,000 and nearly had to shut down.

“If we had understood risk and cash flow management from the start, we would not have expanded into multiple markets so early in the business,” he said.

Thomas Po, co-founder of Zairyo, added that having a strong cash flow is especially important for the rapidly evolving consumer goods industry (FCMG).

Zairyo is a Japanese specialty online gourmet grocer that gives customers access to aerial produce from the Toyosu Market, as well as a variety of select gourmet foods.

Thomas Po, co-founder of Zairyo
Thomas Po, co-founder of Zairyo / Image credit: Zairyo

Thomas explained that his company must be ready for the next “hit” product at all times and be able to afford to import the item in bulk for economies of scale.

If cash flow is tight, FCMG companies are unable to secure large-scale products, especially since most manufacturers typically require a down payment.

When Covid-19 hit, few companies expected it to last this long. Without a strong cash flow, businesses could not endure many months of sharply reduced revenue and survive the pandemic.

How Entrepreneurs Can Maintain Strong Cash Flow

The Venuerific team / Image credit: Venuerific

Ricardo believes that entrepreneurs should aim to maintain a minimum of six months of operating cash flow in their accounts. This acts as a cushion for slowdowns or sudden surprises, like the Covid-19 pandemic.

He added that they should also focus on creating recurring income streams.

On the other hand, Thomas recommends conducting due diligence on all projects that a startup is active on and always ensuring that budgeting is done at the start of the fiscal year.

Their thoughts are shared by Ravel Innovation Founder and CEO Grace Sai, who said cash flow management is one of her key roles as CEO of a startup.

She reviews business projections and measures them against performance at least once or twice a week.

She takes into account every dollar difference she sees, so the team can continue to refine their business acumen, market vision and pipeline.

Improve cash flow management with Xero

xero cash flow management
Quote, invoice, track time, costs and project profitability within Xero. / Image credit: Xero

Businesses have traditionally used Excel sheets to manage reconciliation and finances, which is a very lengthy process and prone to human error.

All of that has since changed with the advent of Xero, a cloud-based accounting software.

Founded in 2006, Xero is one of the world’s fastest growing software as a service companies and has helped more than two million subscribers worldwide streamline business processes.

Xero is designed for start-ups, home businesses, and SMEs because it is easy to navigate and intuitive for beginners. It is also robust enough to handle transactions even as a business grows.

Grace herself has used the Xero software since the start of her professional career and has said that the dashboard functions are simple and user-friendly.

“If we were to continue using Excel or any other legacy accounting software, I would probably have to hire twice as many people to manage this function of the business,” said Ricardo, who started using Xero software in 2016.

The most common feature used by the Venuerific team is invoicing, which has helped management provide a clear visualization of what revenue they can expect and what they can spend.

In addition, the Business Insights feature gives the team an intelligent analysis of the company’s progress.

The data Xero collects helps business leaders better understand their customers and customer types, while also gaining a broad picture of the economy.

Likewise, the Zairyo team stumbled across Xero four years ago and found that it was the solution to issues like quotes, invoicing, and having a database. central cloud data of product cost prices that they could access anywhere.

At Zairyo, Thomas regularly uses the short-term cash flow and activity snapshot functions to manage cash flow, which has allowed him to allocate resources efficiently.

As a Financial Controller, he is able to monitor the financial health of the business holistically through tighter accounting, easy tracking of payments, and sending invoices. Now he uses Xero on a daily basis to get an overview of the daily cash flow of the business.

In addition, the company has various sales channels in addition to its e-commerce platform. Having all sales data collected on a central accounting system with proper labeling allows them to have a holistic view of the potential of each channel.

“Just like the way businesses spend money beautifying pantries and office spaces to increase productivity, a great accounting program is the same. It makes things less painful for those who can’t handle Excel sheets, ”Thomas said.

It is in the interest of all businesses to minimize the time and effort wasted by their staff. Using software like Xero is a profitable investment for both startups and SMEs, especially since cash flow is one of the key aspects of a business.

To learn more about using Xero to maximize efficiency and cash flow, check out their website here.

This article was written in collaboration with Xero.

Featured Image Credit: Xero

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Jothi Venkat

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