Cash Flow Management

Profit is an opinion. Cash is a fact. More businesses fail from cash flow problems than from lack of profitability. Cash flow management is the discipline of knowing exactly what cash you have, what is coming in, what is going out, and how long your runway is.

The 13-Week Rolling Cash Flow Forecast

The gold standard for operational cash management. Updated weekly, it gives a 90-day forward view of the cash position.

Structure

Opening Cash Balance
+ Receipts (collections from customers)
+ Other inflows (loan drawdowns, asset sales, investment income)
- Operating Payments (salaries, rent, suppliers)
- Tax Payments (PAYE, VAT, provisional tax)
- Debt Service (loan repayments, interest)
- Capital Expenditure
= Closing Cash Balance

Building the Forecast

Receipts: Based on invoices raised + expected collection timing

• Group debtors by payment terms and payment behaviour
• Identify slow payers and model their actual payment pattern, not their contracted terms
• Include deposits and advance payments when received

Payments: Based on supplier invoices + committed costs

• Fixed costs (rent, salaries, subscriptions) are predictable — plug directly
• Variable costs (production, materials) tied to revenue forecast
• Tax payments from the tax calendar (PAYE 7th, VAT 25th, provisional tax dates)

Rule: Be conservative on receipts, realistic on payments.

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Working Capital Management

Working capital = Current Assets − Current Liabilities. The components that matter most:

Debtor Days (DSO — Days Sales Outstanding)

DSO = (Debtors Balance ÷ Revenue) × 30

Benchmark: Match or beat your payment terms. If terms are 30 days and DSO is 52 days — you have a collection problem.

To reduce DSO:

• Invoice promptly (on delivery, not at month-end)
• Set clear payment terms and enforce them
• Send statements before the due date, not after
• Follow up on day 31, not day 60
• Offer small early payment discounts for key customers (e.g., 2% for payment within 7 days)
• Stop supplying clients with outstanding amounts beyond agreed terms

Creditor Days (DPO — Days Payable Outstanding)

DPO = (Creditors Balance ÷ Cost of Sales) × 30

Extend creditor days where possible — paying suppliers later improves your cash position. But do not damage relationships or forfeit early payment discounts worth more than the cash benefit of delay.

Inventory Days (for product businesses)

Inventory Days = (Inventory ÷ Cost of Sales) × 30

Excess inventory ties up cash. Review slow-moving stock regularly.

Cash Conversion Cycle

CCC = DSO + Inventory Days − DPO

A lower CCC means less cash tied up in operations. Negative CCC (common in subscription businesses that collect before delivering) is a cash advantage.

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Cash Runway

Runway (months) = Current Cash Balance ÷ Monthly Net Cash Burn

Net cash burn = Total cash out − Total cash in (for a month).

Use this as the headline metric in board and investor reporting. Any runway below 6 months should trigger proactive action — fundraising, cost reduction, or revenue acceleration — before the position becomes critical.

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Short-Term Cash Shortfall Options

When the forecast shows a shortfall:

Option	Speed	Cost	Notes
Invoice discounting / debtor finance	Fast	Medium	Advance against outstanding invoices
Overdraft facility	Fast	Medium	Reserve for true emergencies
Asset-based lending	Medium	Variable	Borrow against plant, equipment
Supplier payment extension	Fast	Low (relationship risk)	Communicate proactively
Customer deposit / advance	Varies	Low	Ask for upfront payment on new work
Director loan	Fast	Low	Temporary measure; document properly
Factoring	Medium	Higher	Sell debtor book outright

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Cash Flow and Tax Planning (South Africa)

Tax payments are the largest single cash outflow for most profitable SMBs. Map them onto the cash flow forecast:

Payment	Approximate Timing	Basis
PAYE/UIF/SDL	7th of each month	Prior month payroll
VAT	25th bi-monthly	VAT201
Provisional Tax (1st)	6 months into tax year	Estimated annual tax
Provisional Tax (2nd)	Year-end	Estimated annual tax
Optional 3rd Provisional	7 months after year-end	Top-up to avoid penalty
Income Tax balance	On assessment	After ITR14 filed

Cash tip: Set aside a portion of each month's revenue into a designated tax savings account. Chasing the SARS payment after spending the money is how profitable businesses get into trouble.