Cash flow management is the lifeblood of your business because it enables you to track cash as it flows in and out of your business revealing to you the causes ofcash flow shortfalls and surpluses. And as such it’s imperative that you understand both the inflows and outflows accordingly.
Cash is generated into a business through:
Cash flow management is the lifeblood of your business because it enables you to track cash as it flows in and out of your business revealing to you the causes ofcash flow shortfalls and surpluses.
Cash flows out of a business through:
These cash inflows and outflows can be categorised into three main business parts:
Financial Adviser at Mmafana Accounting, Tax and Payroll Services, Lucy Ndlovu says when cash flow gap occurs it means your cash inflows and cash outflows don’t keep pace with each other, leaving your business short of cash. This is an especially common problem for small businesses, where cash outflows may repeatedly exceed cash inflow.
She says the most important aspect of cash flow management is avoiding extended cash shortages because when you’re having a gap between cash inflows and outflows you won’t be able to stay in business for too long or pay your bills for any extended length of time. “Therefore, you need to perform a cash flow analysis on a regular basis and use cash flow forecasting so you can take the steps necessary to head off cash flow problems.”
Ndlovu says as a business owner you have to keep a close eye on your cash flow because by doing so, you will forecast potential cash flow problems before they occur. This helps you see that the business is in the red, which is a wakeup call to take action immediately.”
One of the easiest ways to monitor your business cash flow is to compare the total unpaid purchases to the total sales due at the end of each month. “If the total unpaid purchases are greater than the total sales due, you will need to spend more cash you receive in the next month, indicating a potential cash flow problem.”
Ndlovu emphasises that business owners must see themselves as employees and as such must earn a monthly salary and not use the company’s money for personal expenses. “That will make a huge difference and serve to grow the company because knowing that they can be able to get a salary will make them work hard.”
Here are some tips on how to manage cash income more effectivelyfrom Zandile Nkabinde, who’s a practitioner at Azuka Payroll & Accounting Services: