Managing the cash flow of Small and Medium Enterprises (SMEs) in Kenya is a critical aspect that separates thriving businesses from those struggling to stay afloat. A positive cash flow ensures smooth operations, while a negative one can lead to financial instability and even business closure. To help you navigate this crucial area, we’ve prepared some actionable insights for effective SME cash flow management.

Understand Your Cash Flow Cycle

To efficiently manage your cash flow, first, understand your cash flow cycle. This involves tracking when cash comes in (revenue) and goes out (expenditures). Identify the gap between these two events—this is your net cash flow.

Set Financial Goals

Establishing clear financial goals, such as sales targets or savings objectives, helps you focus on the necessary steps to achieve a positive cash flow. Use tools like Lipabiz’s Business Management Platform to help set and track these goals.

Forecast Cash Flow

Predicting future cash inflows and outflows allows you to prepare for upcoming financial needs and opportunities. Regularly review your forecasts, as external factors may necessitate adjustments.

Improve Payment Terms

Negotiate favorable payment terms with suppliers and clients to extend the time you have to pay expenses and receive payments. In turn, shorter payment terms for invoices issued can improve your cash flow faster.

Maintain a Cash Reserve

Having a cash reserve provides a financial safety net during unexpected disruptions like reduced sales or increased expenses. Aim to keep three to six months of operating costs in reserve, but even a smaller amount can help stabilize your business.

Automate Payments

Leverage technology platforms like Lipabiz’s Payments Platform to automate recurring payments and reduce the risk of late or missed payments. Automation also saves time, allowing you to focus on growing your business.