1 Man who sells airtime

What makes a person who sells airtime on the street survive longer than most companies that we know. The list of companies that have closed are long yet the guy on the street survived longer with a smaller budget and simple cash flow discipline.

The bigger businesses had more capital, more combination of MBAs forget about the degrees, they just had more. The guy on the street just had their airtime, their spot and counted the cash they had and still survived longer. So who then understands business better? Would it not be the guy on the street selling his airtime so consistently and achieving the following?

• Earning a wage
• Buying food
• Being alive
• And still remain on the corner

Business is not easy and sometime the biggest companies close with not fight in them. Below is a list of closed banks in Zimbabwe as of 2015

• AfrAsia Bank Zimbabwe Limited [Closed – 24 Feb 2015 – in final liquidation]
• Allied Bank [Closed – 8 Jan 2015 – in final liquidation]
• Interfin Banking Corporation [Closed – 31 Dec 2014 – in final liquidation
• Capital Bank [Closed – 4 June 2014]
• Trust Bank Corporation Limited [Closed on 6 December 2013 – under provisional liquidation]
• Royal Bank [Closed on 27 July 2012 – Bank in final liquidation]
• Genesis Investment Bank [Closed on 11 June 2012 – Bank in final liquidation]
• Century Discount House
• Rapid Discount House
• Sagit Finance House
• NDH
• HighVeld
• Intermarket Bank
• Intermarket Discount House
• Original Trust Bank, Royal Bank, and Barbican Bank whose assets were sold to ZABG in 2005.

List of closed banks from http://www.dpcorp.co.zw/update-on-closed-banks.html [Accessed 31 August 2015]

After all these businesses closed the man on the street remained still selling their airtime. And their secret is simple; they just know how to manage their cash flow.

Where Businesses Go Wrong

Thinking lots of cash flow means the business is successful. Having lots of capital does not mean that the business is doing well. You might have lots of cash but that might just be investor’s funds and the actual trading cash from sales is very insignificant When the investors funds finishes what happens? Having lots of money does not mean the business is doing well. You must know where the money is coming from. Is it really coming from sales. Most small businesses then end up funding the business from their pockets and in the end they become frustrated why nothing is working out. No one can fund the business for an eternity from their pockets, at some point something has to give.
Managing a business without knowing where the money really goes to. What if all the money is just going into someone’s pocket or just buying assets, building which do not produce money. How then can one trace where the money is. There is nothing wrong in buying assets but there is everything wrong in buying assets which do not make money.

If a business has too many assets which are not supported by the sales and the cashflow from the sales then that business is in trouble. Sooner or later that business will fail to raise its own rent and has to start failing to pay creditors to support its buildings and salaries.

A simple article

Interfin was placed under the curatorship of Mr Peter Bailey of KPMG Chartered Accountants after the central bank determined the bank was not in a safe and sound financial condition. Royal Bank was founded in 2001 but three years later, the central bank closed it together with Barbican Bank and Trust Banking Corporation for engaging in non-permissible activities. The banks were later merged, to form Zimbabwe Allied Banking Group. In September 2010, the RBZ re-issued the commercial banking licences of the three banks and Royal Bank re-opened in February 2011, but struggled to raise the US$12,5 million minimum capital requirements for commercial banks. Its efforts to court a Kenyan bank to inject capital proved futile although Mr Mzwimbi was last week quoted as saying the deal was close to being sealed. The central bank established the Kenyan bank had not finished doing a due diligence on the bank

Source: http://www.thezimbabwedaily.com/business/12719-royal-bank-shuts-down.html [Accessed 31 August 2015]

1.2 Why not keep it Simple?

Is this simple to understand? In financial accounting, a cash flow statement, also known as statement of cash flows,[1] is a financial statement that shows how changes in balance sheet accounts and income affect cash and cash equivalents, and breaks the analysis down to operating, investing and financing activities. Essentially, the cash flow statement is concerned with the flow of cash in and out of the business. The statement captures both the current operating results and the accompanying
changes in the balance sheet.[1] As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company, particularly its ability to pay bills. International Accounting Standard 7 IAS 7), is the International Accounting Standard that deals with cash flow statements:
Source: https://en.wikipedia.org/wiki/Cash_flow_statement [Accessed 25 August 2015]
Why not just say the definition of Cash flow is “Cash In vs Cash Out.” A cash flow in its simplest form is when you know where the cash went to and where it came from.
This is important to the business.

1.3 The Components of a Cash Flow Statement

1. Operating Activities

The statement provides information about the cash generated from a company’s daily operating activities. Operating activities are those which produce either revenue or are the direct cost of producing a product or service. You cannot have a business that does not have normal operating expenses such as fuel or stuff. The business must be able to balance this by getting sales which produce cash. There must be cash coming from trading, this is critical.

2. Investing Activities

Investing activities include buying and selling noncurrent assets which will be used to generate revenues over a long period of time; or buying and selling securities not classified as cash equivalents. Investment is critical for any business but it must be done at the right time.

 

 

 

3. Financing Activities

Financing activities include borrowing and repaying money, issuing stock equity) and paying dividends. These are good in agriculture and mining but one must anticipate when they can service their loans as well.
1.4 Point of Note

1. A company can operate at a profit and continually be short of cash.
   B. It can also generate huge inflows of cash from operations and still report a loss.
   The statement of cash flows can explain how these situations might occur. Answers to these questions cannot be found in the other financial statements.
   Imagine a company that sells on credit everything, if one did that how would one pay for salaries, rent and fuel. Salaries are real cash payment and so are rent. If there is not enough money to pay for these where will the money come from.

1.5 Where do Small to Medium Business Go Wrong

• Keeping the same purse for Business and that for Personal Use
• Inflows and Outflows that are not Traceable
• Never Checking if there is Net inflow or Net Out flow
• The result normally is that you start funding the business with your own money,
  sometimes you get money from it sometimes you don’t.
• Treat business as an individual
• Study the resource for cash flow that is in this section. Compare the different areas of the cash flow and see how they have been used.