Business Analyst - July 5

Tuesday, July March 5, 2022 1, 2022
Our finances, cash & cashflow
YEARS ago, Akwasi, a relative of
mine lived with us. He had
just graduated from Legon
and had begun working with a
state organization. He was as
soft-spoken then as he is now, and a very
agreeable fellow.
One evening, Akwasi fell ill. I can’t
remember what the cause was but he had
a very acute stomach ache. My dad
immediately thought about taking him to
Korle-Bu for diagnosis and treatment. It
was about 6:30 pm when we left home and
already dark when we arrived there. We
were told to go to the Polyclinic instead. At
the Polyclinic, a stretcher was brought to
send him in.
A nurse then enquired what the
problem was. My father explained that my
cousin (Akwasi) had a very bad stomach
ache which had begun earlier that day. The
nurse retorted, “And you chose to stay in
that pain for all this while?” It was
amazing how she concluded that someone
would be in pain and choose to bear the
pain for such a lot time instead of doing
something to get a remedy.
Truth is, we had gone through a lot
before we appeared before her. The
commute to Korle-Bu from home had
been quite long and we had initially gone
to the teaching hospital before being asked
to go to the polyclinic instead.
What I learnt
There are lessons I glean from what I
call ‘the Akwasi episode’. Indeed, lessons
with connection to our finances, cash and
cashflow. Many times, it is a wonder why
we seem to hold on to expenses without
doing something about them. Why do we
have expenses sometimes piling up? Is it
an intentional indulgence in
procrastination? On every day bills that
can even be envisaged: why do we
sometimes find ourselves allowing bills to
build up without paying them off when
they fall due? Is it that we really ALLOW
them to pile up?
Certainly, in most cases, we don’t. No
one in their right senses would want
expenses which have to be dealt with
grow and eat away all efforts to create
wealth. Of course, in business, it is useful
to finance your operations with finances
and activities of others, where interest
costs are not considered. It is all about
cash and cash flow.
We prefer to purchase on credit and
stagger payments yet we would rather
receive cash when we sell goods and
services. We wait till close to the middle of
the month to settle statutory payments
like Tiers I and II pension payments and
taxes. Years ago, as a young employee, I
was tasked to supervise construction
workers.
I hired a concrete vibrator machine
for them and when they were done, I
requested for cash from the accounts
section to return and pay for the
machine’s use immediately. Strangely, I
was told I appeared to be too much in a
hurry to pay my creditors and that it was
“Back to the build-up
of expenses. When
expenses are paid for,
credibility is built for
goods and services to
move round in the
immediate future,
psychological relief is
achieved and cash
can move to get
things done to keep
everyone happy.
Therefore, we all
would usually want
to pay for expenses
early enough.
not appreciated! Nothing made sense at
the time, of course, until I was introduced
to the time-value of money and the
importance of cash and cashflow.
Cash, the king
The assertion, ‘cash is king’ is very true
for our personal finances and investments.
The worth of money is much more evident
when it is in motion than when it sits.
Cash on the move accomplishes many
things. In physics, cash is like kinetic
energy, wealth is like potential energy.
Kinetic energy produces work.
Potential energy stores work. Let’s look at
this, for instance. Saap receives contract
payment for a consulting task she
submitted. Great! Time to visit the Grand
Oyeeman and drive away with the Range.
She makes payment and the keys are
handed over to her. As she rolls out, dark
Ray Bans on, sun-roof opened, she reflects:
she had built wealth through her
consulting work.
Potential energy. She got paid (cash
transferred to her bank account) and she
also transferred it to the dealership.
Kinetic energy. The dealership then pays
the shipping company, Maersk, for
delivery of Land Rover and Jaguar cars,
parts and accessories. The shipping
company purchases marine heavy fuel oil
(HFO) from AI. The energy company, in
turn, pays its tanker drivers and other field
operations workers.
The money keeps moving around
getting more and more things done as it
moves, and Auntie Akweley the banku
seller will get hers for all the banku and
hot pepper she had sold to the workers
that month.
Back to the build-up of expenses.
When expenses are paid for, credibility is
built for goods and services to move round
in the immediate future, psychological
relief is achieved and cash can move to get
things done to keep everyone happy.
Therefore, we all would usually want to pay
for expenses early enough.
The problem is, cash does not move to
us soon enough, often enough or in
adequate quantities. Cash flow is never
enough. Cash flow is non-uniform.
Additionally, cash flow may not be easily
predictable. Invariably, expenses become
due and get unpaid. They accumulate until
a significant inflow arrives to care of it.
Cashflows and Controls
For regular workers, the cash inflow
(wages, salaries) is usually predictable.
There may be other sources of income, not
predictable or not regular. What about the
cash outflows?
It is advisable to have our outflows as
predictable as possible and as manageable
as possible. Watch ‘commitment’ expenses
which are difficult to break from: school
fees, personal loan repayments, mortgage
repayments, hire purchase payments for
consumer goods, rent, utilities, etc.
These are expenses which need
controlling. Before we sign up for any, it is
helpful if we ensure that each one does not
constantly over-stretch us. A good
examination of the inflows should advise
us. It would be tough enrolling our
children in a twelve thousand cedis per
term school if our inflow each month is
just three thousand cedis.
It would be ill-advised to take a
personal loan to purchase a consumer
item when the loan repayment amount is
prohibitive. Without careful consideration,
all these costs, when they are committed
to, can give us stress. Additionally, they can
take away all probability of us retaining a
positive net cash flow which would enable
us to invest.
Very tough decisions have to be made
by each of us from time to time. As we
aspire for and actively seek financial
independence, we should make the
attempt to match our cash inflows with
our cash outflows. We can better our cash
inflows but it may not be easy and it may
be out of our control for a period.
doing extra jobs for multiple and
larger aggregate income is the way go,
usually. It is the outflows that we can
determine how large and frequent they
would be. That is where we can exercise
greater control and careful consideration.
Inflows can then target expenses for
adequately prompt payment.
For instance, ‘side relations’ can be
very expensive and can rob us of the
chance to set aside money in investment.
For men especially, the costs of
‘maintenance’ for the side-chick (and any
children in the ‘side relation’), ensuring
stealth like a CIA operative, and
‘reparation’ to their spouses when their
covers are blown may make the often-time
‘high-risk, high return’ venture of a side
relationship not worth it and at variance
with wealth building.
About the Author
For the love of wealth creation and
financial freedom for his readers, he writes.
Through his writings Kwadwo has
discovered his love and knack to simplify
complex theories spicing them with
everyday life experiences for the benefit of
all. He was recently the resource person of
Metro TV’s business show Bottomline,
where he shared thoughts on Goal Setting
for 2022 from the perspective of financial
planning.
The Head of OctaneDC Research,
Kwadwo Acheampong, has over years
garnered experience in fund management
and administration, portfolio management,
management consulting, operations
management and process improvement.
Feel free to send him your feedback on his
article.
Kwadwo at
kwadwo.acheampong@octanedc.com or
call him on +233 244 563 530