We hear every day that “cash is king.” How can you control your business to have the right amount of cash on hand at any given time?

To start with, let’s have a look at what cash flow is – exactly. Quite simply, it is the physical money that you have access to at any given time. It’s not the money that you are waiting to be paid. It’s not the stock that you are waiting to sell – it’s what’s available then and there.

Having a good cash flow is absolutely imperative. As SMMEs (Small, Micro, Medium Enterprises), we need a good cash flow in order to purchase our supplies, to pay rent, to pay our staff and to pay our way in the every day manner in which we conduct our business. In short it is the lifeblood that we need in order to earn our livelihood, without it we would wither up and literally die.


First of all we need to get money into the business – this is usually referred to as a “cash inflow” and it is usually made up of four different component, including:

  • Sales of our products and/or services – that’s pretty self explanatory.
  • Loan or credit card proceeds – this is either money that we have loaned from a bank or financial institution or money that we have loaned our business in our personal capacity. It could also be money that is coming to us from sales that were paid for by means of credit cards or money that we have ‘borrowed’ on our credit cards; even money that is owed to us by our debtors.
  • Asset sales – this would be when we sell assets (such as old computers or vehicles etc) that were previously purchased by the company that we are now upgrading or just getting rid of.
  • Owner investments – these would be property and/or financial and/or business investments that we have made on behalf of our company.

Then of course money goes out of the business – this is usually referred to as “cash outflow” and again it is usually made up of four different components, including:

  • Business expenditures – these are the expenses that are raised in the normal day-to-day running of the business. This would include salaries and wages etc for the staff.
  • Loan or credit card principal payments – just as you got the money either from a loan or your credit card, now you have to pay that loan back or pay your credit card back.
  • Asset purchases – again, just as you sold old equipment or equipment that you no longer needed, so now you have to buy new equipment and/or assets for the business.
  • Owner withdrawals – this refers to money taken out of the business by the owner for personal use. These drawing are usually offset against the money that the owner has lent to the business out of his/her loan account.

Both the cash inflows and the cash outflows also fit into three main categories within the business and these are:

  • Operating – this covers the sales of products and/or services of your business, together with the business expenses that you incur in the selling of your product and/or service.
  • Investing – this would be all the assets that you buy and sell, and
  • Financing – this obviously covers all the loans and the repayments of the loans as well as the money that the owner has invested into his/her business and the withdrawals that he/she makes for personal use.


As usual, I will be sharing the simplest “how to” method, so please be aware that there are many more components and levels of complexity to this subject.

It is important to understand that most of the money that you generate as an inflow should be from the sale of your product and/or service. It cannot be from investing and/or finance – if this is the case, you are going to be very deep in the smell brown stuff without a shovel to dig yourself out. So sales are obviously key; irrespective of whether you are selling a product or a service.

It is also important to understand that the inflow and outflow of your business tells the story of how healthy or unhealthy your company is. That is one of the reasons that I believe it is so important to have the services of a really good accountant to assist you. The understanding and “reading” of the story of your business can only be done by someone who is experienced in these matters and someone who will tell you where you are going wrong and guide you back into the correct path. (My someone is Nico Labuschagne or Labuschagne & Associates and I am quite happy to share his contact details:

That said, it is also very important to understand that cash flow is a “real time” issue, as opposed to having your books done on a monthly basis. By the time these get to the bookkeeper/accountant they are already a month or so old and are therefore a “reactive” issue. You cannot wait for a whole month to then realise that you have no money to pay the bills that are coming and are due, right away. When it comes to cash flow, you have to be proactive.

To create a cash flow statement (remember that it is a living, breathing document and it changes all the time), you need to take all the business inflows and subtract all the business cash outflows. This is usually done on a monthly basis but it can be done for any specific period. Obviously doing this manually is a pain, so using an accounting package to generate financial statements and thereby producing a Cash Flow statement, would be the simplest way to do it.

When you work out your budgets, it is extremely important to use “cash flow projections”, because if you as a business owner do not understand the way in which your cash flows operate, you will find yourself in a cash flow crunch, where you will be waiting for funds to come in, but have operating expenses that need to be paid before that time.

This is particularly true if you have or run sales on account (hopefully you are then registered with the National Credit Authorities as a service provider), or alternatively have clients with payment terms of 30 to 60 or even 90 days. You need to make provision to ensure that you have enough cash on hand to pay your bills while you wait for monies to come in.

As SMMEs, I am sure that you will agree that this is a very difficult position to be in and this is why it is vital to firstly know what is happening from a financial perspective and secondly to understand what happens when you have cash flowing both in and out of your business.

Understanding and knowing where your money is coming in from and where your money is going out to is key to controlling your cash flow.


Nikki Viljoen – Internal Auditor and Business Administration Specialist at Viljoen Consulting

(Your Business – Volume 15 No 6)