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Business experts acknowledge that healthy cash fl ow is the life-blood of your business. Some of them even argued that the movement of money

in and out of your business more important than ability to deliver its goods and services. A business is said having positive cash fl ow when its infl ow money or cash collected primarily come from the sale of goods or services exceed their outfl ow.

Malaysian Indian Business [MIB] research team found that most of Malaysian Indian businesses often face cash shortages that prevent them from meeting fi nancial obligations that resulted diffi culty in planning for the future and expansion. MIB share some game plans business can try in improving their cash fl ow:

SET YOUR PRICES COMPETITIVE

Setting price competitively with desire profi t margin is very crucial for business to sustain continuously in the marketplace. The game plan for competitive pricing needs better pricing strategy and effective cost of goods sold purchasing mechanism.

In setting competitive price business owners may consider the following factors:

• Their product position in the market and customer segment

• The relationship between the price and quantity sold

• Your distribution and promotion of your products• The costs associated with your products including

the fi xed and variable costs• Your competitors pricing• The method of calculating price and what you want

to achieve?• Try to negotiate for a better price with suppliers,

possibly buy in bulk if stock turnaround is faster • Get discount by paying earlier • Get best pricing for your supplies by shopping

around for other competitive suppliers• Implement new effi cient processes in producing

your goods

DON’T PAY TOO EARLY BUT MANAGE YOUR DEBTORS

Hold on! Don’t get confused. Read further following three steps game plan.

First: Manage you debtors as until money not in your bank a sale isn’t a sale.

Following step by step actions might assist to reduce accounts receivables:

• Receiving deposits on signing of sales confi rmation• Offer discount for early payment• Issue invoices immediately• Review receivable reports regularly and follow up

with overdue• Should customer face problem be fl exible by

offering easy payment plan• Where possible accept payment via credit card

Second: Manage you stocks

You’re out of business if no stock while too much stock can impact cash fl ow heavily. The right stock level needs very sharp business acumen with good accounting knowledge. Some examples of how to improve stock control:

Set minimum and maximum levels of stock and stay within these levels

• Clear old and outdated stock by offering discounts

• Use ratios such as inventory turnover and days inventory to compare to p rev ious p e r i o d s and industry standards

• For fast moving stock, buy in bulk to receive a discount

• Focus on a ‘just in time’ ordering system

Third: Don’t pay too early

Proper procedures and monitoring may reduce overpayments or payment for non-delivered goods. An example of overpayments, is when for payments made based on a statement and yet not have an invoice to verify the purchase. To avoid such situation include:

• Two signatures for accountability on purchase orders

• Request new quotes on half yearly basis for products previously purchased

• A proper procedure for receiving goods• A procedure for payment of goods that requires

purchase order, delivery docket, invoice and statement. The level of paperwork required may vary depending on the size of your business

GAME PLANS TO MAINTAIN POSITIVEBUSINESS CA$H FLOW?

Examples of Infl ow and Outfl ow

Infl ow Outfl owCash sales Payment for purchasesReceivables from sales of goods or services Business operating expensesBorrowings Purchase of assetsCash from business sales assets Payment of Loans /InterestInvestment Incomes Taxes

FINANCEFINANCE • by Arikrishnan Subramanian

Cash Flow Sept 14 Oct 14 Nov 14 Dec 14Opening Balance (55,500.00) (37,100.00) (18,500.00) 900.00

Receipt from Customers 72,000.00 75,000.00 73,000.00 73,500.00

Total Cash inwards 72,000.00 75,000.00 73,000.00 73,500.00

Less Cash Outfl ows

Cost of Sales 36,000.00 36,000.00 36,000.00 36,000.00

Wages 10,000.00 10,000.00 10,000.00 10,000.00

Total Overheads 7,600.00 7,600.00 7,600.00 7,600.00

Taxation 2,800.00 2,800.00

Total Cash Outfl ows 53,600.00 56,400.00 53,600.00 56,400.00

Closing Balance (37,100.00) (18,500.00) 900.00 18,000.00

Example of 3 months cash fl ow statement

| AUGUST 2014 | AUGUST 2014

20 FINANCE

• Pay your creditors on the day the invoice is due. Do not pay early or late

• Negotiate longer payment terms or a payment plan if the business is struggling

• Negotiate discount for early or up-front payment

OWNER’S REDUCE YOUR DRAWINGS

WHAT, I’m bringing in business and you say don’t take the money out for my use? That’s the usually crumble by most of the entrepreneurs. Well, we understand your pressing need but the survival of business is more crucial them your current needs. One of the most common problem among Malaysian Indian businesses are owners withdrawing more cash than the business able generate, followed by poor fi nancial reporting.

Drawing out wages in excess of profi t generated by business for personal expenses without considering future cash outfl ows need can destroy a business very quickly. Business owners may need fi nd the balance

between reinvesting the profi ts to grow your business and enjoying the rewards of your hard work now or postpone it to a much later stage. We suggest a regular wage withdrawal much lower than monthly net profi t of your business to enable the doubling effect took place.

MIB MEET UP1. Details as our Facebook Page: www.facebook.com/MalaysianIndianBusinessMagazine

2. Bring along this original voucher to AUGUST 2014

MIB MEET UP Session along with one business guest.

3. It’s FREE for you and your Guest gets 50% off.

MAINTAIN 3 MONTHS CASH FLOW STATEMENTSA profi table business can still have cash fl ow problems. For example, QWE bought stock for RM8, 000 in July. They paid for the stock at the end of August. The stock was sold to XYZ for RM12, 000 in September and they received the money for the sale in November. In September QWE has recorded a profi t of RM4, 000. However, the profi t doesn’t hit the bank till two months later.

By maintaining a three month cash fl ow budget any excess cash should be transferred to a high interest bank account that can be easily accessed when it is needed or prepare action plan to reduce impact of negative cash fl ow.