Creative ways to manage your finance

With the recession and downgrades it is becoming imperative for businesses in South Africa to look for innovative ways to manage their finances. To overcome the economic challenges it is key to understand how your business and cashflow will be impacted by the recession and downgrades, so that you can plan ahead and implement measures that will ensure your business remains sustainable and survives in the tough economic climate.

It is important to take note of the following risks to your business:

• Currency risk: The depreciation and volatility of the rand increase the risk to businesses dependent on crossborder trade. If you are importing goods and are concerned about the volatility of the currency, depending on whether or not you hedged your exposure, it would be advisable to discuss your position with a business manager.
• Inflation risk: With a weaker rand, inflation will most probably increase, resulting in higher input costs. This will put further pressure on your cashflow.
• Interest rate risk: Rising interest can increase the cost of borrowing, which will also put pressure on your cashflow.
• Turnover risk: The purchasing power of the consumer will be affected severely by the higher cost of debt as well as job stagnation and job losses, resulting in a drop in sales and turnover. As a consequence, there will be additional cashflow pressure on businesses.
• Social instability risk: This opens businesses up to increased operational risks, such as fraud.

In such challenging economic times and in the face of these risks businesses have little choice but to manage their cashflow and liquidity requirements better. Having access to cash reserves is probably the best way to maximise liquidity, as the downgrades could mean that the cost of borrowing will become higher.

Another option of managing cashflow is through debtor management, which allows businesses to receive funds quickly and extend creditors’ payment terms.

And yet another way of improving your cashflow is creating savings, which is really about optimising what is already in the business, for example being more efficient and therefore your overall interest rates would be lower.

Gone are the days when it is ‘business as usual’. Businesses will have to tap into the latest available technology and data to become more efficient and equipped to ride out the economic storm.