CASH flow is often a frustrating topic for business owners because bank statements rarely reflect the true financial standing of the business. Raizcorp academy manager Yasmeen Alli unpacks cash flow fundamentals with Gerda Herman, a small business financial expert.

“Your bank account very rarely reflects the true financial standing of your business. Month end and account due dates seem to come so much quicker than client payments. This is one of the fundamentals that many business owners struggle with,” says Alli.

Cash flow is not the complex process that many business owners deem it to be and it requires careful planning. “Take a good look at forecasts of all your key financial aspects. The budget if done with intent and proper research will help you to see when your business can expect to go through lean periods. This will either help you to up your sales during this time, cross sell products or use the time to work on your businesses internal mechanisms so that when the dip ends, you’re better prepared to conquer the industry,” Alli says.

To determine the liquidity of your business, you will need to create a cash flow forecast which will take into account all your cash on hand such as money in the bank, loans, floats and even petty cash.

“We need to reconcile our expectations in terms of inflows and outflows with what we believe will be available to us,” says Alli.

To create a cash flow forecast, start by looking at your spending patterns. Alli explains how best to do this:

Herman says entrepreneurs often do not understand that there is a distinct difference between profit and cash. Profit is what you have generated and cash flow is only a percentage of that profit, she says.

Herman explains why cash flow forecasts should be devoid of any surprises and what to do when you run low on cash:

Relationships are also crucial to making sure your financial controls are in place, says Alli. The key people to have good relationships with are your bank manager, the SA Revenue Service, suppliers and anyone involved in the business.

Alli unpacks how each of these relationships will impact the success of your business:

• Small Biz MBA airs on Business Day TV channel 412