Cash flow is the lifeblood of a business. Entrepreneurs do not fail because of lack of ideas, but often because they run out of cash. With proper tracking, discipline, and smart use of financing tools, SMEs should remain liquid, survive shocks, and grow sustainably.
Cash flow is the movement of money into and out of a business. Managing cash flow for optimal performance is ensuring that the timing of money coming in and going out of a business is well balanced, so the organisation remains liquid, avoids unnecessary borrowing, and can seize growth opportunities.
There are three main types of cash flow. These are operating cash flow from sales, services and operations, investing cash flow from asset purchases or sales, and financing cash flow from loans, equity and repayments.
It is important to manage cash flow because of liquidity for day-to-day operations, ability to meet obligations such as salaries, suppliers and so on and to determine growth opportunities.
Entrepreneurs often have common cash flow challenges that include late customer payments, high operating expenses without matching revenue, over-investment in stock or fixed assets, seasonal sales fluctuations, and poor record-keeping.
The principles of cash flow management are visibility or tracking of every inflow and outflow, discipline or separation of business and personal spending, planning or forecasting cash needs in advance, and flexibility or adjusting quickly to changes in revenue or costs.
Some tools are usually applied for cash flow tracking and forecasting. Cash flow statement is used to record past performance while cash flow forecast is used to project future inflows and outflows weekly or monthly.
Simple methods for SMEs are cashbook which is manual, excel templates and apps such as QuickBooks, Zoho, Kippa, Bumpa and Pastel.
In order to optimise cash inflows, entrepreneurs should invoice immediately, offer small discounts for early payments, encourage digital or mobile payments, reduce excessive credit sales, and diversify customers to avoid overdependence on one. Exporters should use forward contracts to manage foreign exchange volatility.
In controlling cash outflows, SMEs should prioritise essential expenses, negotiate supplier credit terms for 30 to 60 days, buy in bulk to beat inflation especially for non-perishables, lease assets instead of big upfront purchases, and control overheads such as rent, utilities and salaries.
SMEs should be building liquidity buffers by keeping two to three months’ worth of expenses in reserves, arranging overdraft or working capital facilities before the need arises, parking surplus in safe and short-term instruments like treasury bills and money market funds, and joining savings groups like “ajo” or “esusu” for additional liquidity options.
Financing options open for SMEs in Nigeria are microfinance banks which are accessible but with higher interest rates than the retail banks, government schemes such as Bank of Industry (BOI) loans, Central Bank of Nigeria (CBN) MSME funds and Anchor Borrowers Programme, fintech lending such as quick loans from Payhippo, Lidya and Carbon for Business, and trade associations and cooperatives with group purchasing power and funding.
SMEs should also leverage technology. Mobile-first apps should be used for invoicing and record-keeping. Payment platforms such as Paystack, Flutterwave and Moniepoint should then be applied. Cloud-based tools should be used to sync across devices, and SMS/WhatsApp reminders for debt collection. Digital payments encourage customers to use transfers or USSD payments to reduce bad debts while mobile money integration is especially useful in rural and retail businesses.
Growth and risk should be well managed. The SMEs should always stress-test by applying the what if scenarios, build partnerships with suppliers for better credit terms, avoid overexpansion without cash buffers, insure assets against fire, theft or climate risk, explore export opportunities for forex earnings, and reinvest profits only where return on investment is clear. In other words, the SME must properly align with business growth by reinvesting profits strategically through fund marketing, new products, or expansion, by scenario planning through stress-testing for sales drops, delayed payments, or cost spikes, and by supply chain financing or dynamic discounting through collaboration with partners to optimise working capital.
Entrepreneurs are encouraged to utilise the step-by-step checklist to manage the cash flow of the business. Track cash daily/weekly, forecast monthly for 3 to 6 months, collect receivables faster, negotiate payables smartly, separate business from personal accounts, keep reserves and credit lines ready, use tech tools for monitoring, and reinvest cautiously for growth.
The secret for Nigerian SMEs to optimal cash flow is to digitise collections, negotiate expenses, build buffers, and use financing tools smartly.
In conclusion, optimal cash flow management balances liquidity, profitability, and growth. The key is visibility or tracking, discipline or controlling spending, and flexibility or adapting quickly to changes. SMEs that follow through will definitely survive and grow.
