Expert Talk #2: How to manage cash flow more efficiently? (Part 1)

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    Thank you for taking your time to share more of your insights with the Financial Management column of UOB. With 15 years of experience in the world of finance, could you briefly describe your background for our readers?

    Hello everyone. It is my pleasure to be here and discuss this subject with you. After completing my PhD in finance at the University of Exeter (UK), I have dedicated 15 years to education and consultancy in the field of financial and risk management for businesses. Currently I am a lecturer in Finance at Foreign Trade University (Vietnam) and a chartered financial analyst (CFA) with the CFA society Thailand. Meanwhile, I am also a certified Financial Risk Manager (FRM) by Global Association of Risk Professionals (GARP).

    What in your expert opinion are the most common financial management issues that SMEs typically encounter?

    Small- and medium-sized enterprises (SMEs) play a crucial role in economic growth, even in developed countries. Of all businesses in Vietnam, 98% fall into the SME category (approximately consisting of 700,000 companies), which in turn supplies 78% of labor force, 49% of total GDP and 41% of government budget balance. Nonetheless, Vietnamese SMEs are facing operational challenges. Statistics from the Department of Business Registration (Ministry of Planning and Investment) show that the number of enterprises (mainly SMEs) closing down hit 8,463 each month in the first half 2019. The main reasons for this are: Vietnamese SMEs have a low financial management capacity; they have a limited operating scale and mobility; they are lacking non-current assets as well as transparency in capital management; they have low profitability.

    Despite their high competence in developing products and services, SME owners are short of critical management skills, particularly financial management. Many of them avoid handling financial matters directly due to time-consuming operational tasks, such as manufacturing, market research, human resource management, or because they lack expertise (and interest) in dealing with finance. They rely on accountants, although not all companies can even set up their own accounting department. In fact, outsourcing accounting services is the main choice of SMEs when it comes to doing the books and filing taxes.

    One of the greatest barriers to SMEs’ development is capital shortage. Not only do start-ups endure this problem but growing enterprises also run into financial trouble when they plan to expand the business. Since cash flow is as vital to a business as oxygen is to the human body, the biggest concern of SME owners is their inability to control cash flow efficiently.

    Cash flow management is an essential aspect of financial management for SMEs. It’s estimated that 82% of small businesses fail because of cash flow mismanagement (according to a US study) and yet a lot of SMEs don’t understand the difference between cash flow and profit. General accounting in which you focus on net income and profit instead of cash flow can lead the company to a crisis, even if you are ‘doing well’. Hence, there is no doubt in my mind that cash flow management is the key to success of any business.

    (To be continued)

        

    1Jessie Hagen of U.S. Bank, cited on the SCORE/Counselors to America’s Small Business website http://www.score.org 

       

    Coming up next in the series: Ms. Hoang Anh will share more details about the im-portance of creating a cash flow planner for your business. Should you have any question related to this topic, feel free to leave a comment below. UOB and Ms. Hoang Anh will respond to you at the earliest opportunity.

    Expert Talk: How to manage cash flow more efficiently (Part 2)

    Expert Talk: How to manage cash flow more efficiently (Part 3)

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    Comment

    Nguyen Trong Nhan, Manager

    For SMEs, having access to working capital loan is echallenging. That is why systematic planning is essential for business development.

    Doan Minh Tu, Sales Manager

    I agree with the analysist that to manage cashflow effectively, each business needs to plan for inflows and outflows for the nextcoming years by focasting the market in the future.

    Nguyen Ba Phuoc, Chief Accountant

    For SMEs, the owners usually assume multiple roles and may lack the knowledge of cash flow. This may limit their ability to obtain lending from banks.

    Nguyen Thanh Hung, Director

    Collecting receivables timely and application of lending/ credit policies for banks on raising funds are important for SMEs.

    Bui Quang Minh, Head of Human Resource

    Actively managing cashflow is extremely important to SMEs. Well-managed inflows and outflows can help businesses from unnecessary debts.