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Cash Flow

Cashing Out

Where does cash flow fit into profitability?

Steven Delport



Increase-Profits-Cash-Flow-Financial Management

A business goes bankrupt when it is unable to meet its payment obligations when they fall due, that is, bankruptcy is caused by a shortage of cash. However, a shortage of cash is not necessarily related to profitability. In fact profitable businesses can go bankrupt, while companies making losses can have substantial cash.

Cash is king, but what is cash flow and what is the difference between profitability and cash flow? What are the sources of cash and how do we improve cash flow?

What is cash flow

Cash flow is the difference between cash coming into the business (cash receipts, inflows or sources of cash) and cash going out of the business (cash payments, outflows or uses of cash). Cash flow is thus positive (a net inflow/ source) if receipts are greater than payments or negative (a net outflow/ use) if receipts are less than payments.

Profit versus cash flow

Sales (selling) less expenses (purchases) = profit or loss.

While, cash receipts less cash payments = cash inflow or outflow.

The difference between a profit or loss and a cash inflow or outflow is essentially a difference in timing.

We will use a simple example to illustrate this concept.

If you buy a cool drink for R7 and sell it for R10 then you have made a profit of R3. If this cool drink was sold for cash then you would receive payment of R10 from the buyer. However, if the cool drink was sold on credit/ account you would not receive any payment at the time of the sale, but would hopefully receive payment sometime in the future. In both cases the profit is the same (R3), but the timing of the receipt of cash is very different.


Sources or uses of cash

There are 4 sources or uses of cash:

1)  Operations

Cash inflow or outflow from the primary business operations or trading activities of the business, that is, through the buying and selling of products or services.

2)  Changes in working capital

Working capital consists of current assets (stock/ inventory and debtors/ accounts receivable) and current liabilities (creditors/ accounts payable). An increase in stock and receivables is an outflow/ use of cash, while an increase in payables is an inflow/ source of cash and vice versa. When stock/ inventory is paid for, it affects cash flow, but it only affects profits when sold.

3)  Investing activities

Here we primarily refer to capital expenditure and investments in operational fixed assets (motor vehicles, equipment, machinery, etc.), although investing can also include investments in shares or other financial assets.

When assets are bought there is an outflow of cash and when the assets are sold there is an inflow. Investing activities affect cash flow when paid for, but are charged against profits over the useful life of the asset in the form of depreciation.

4)  Financing activities

Finance or capital is typically raised from a combination of shareholders equity and loans. Raising equity or loans will result in an inflow of cash, while the repayment of equity (including the payment of dividends) and loans (both capital and interest) will result in an outflow of cash.

Cash flow from operations is derived from the income statement, while changes to working capital, and investing and financing activities are reflected in changes in the balance sheet figures from one period to the next.


Improving cash flow

Ironically cash flow is not necessarily improved by an increase in sales. As sales increase a business needs more capital and ties up more cash in inventory and receivables, and often fixed assets. The rate at which a business can grow is largely determined by the amount of capital it has to support this growth. When a business grows too quickly it will burn cash and thus have a negative cash flow

Cash flow can be improved by:

  • Reducing costs and expenses → if costs are reduced you pay less and thus use less cash,
  • Reducing  assets → a source of cash and improves cash flow,
  • Improving processes and efficiencies → reduces costs, assets, re-work, waste, scrap and delays/ waiting thereby improving cash flow, and
  • Sales

1)  Reducing costs and expenses

Costs can be divided into fixed and variable costs.

Fixed costs remain unchanged irrespective of the level of production. Examples include depreciation (essentially the cost of fixed assets), leases, rental, insurance, rates and taxes, and certain salaries.

Variable costs change in proportion to the level of production. Examples include raw materials, labour and sales commission.

Fixed costs

Fixed costs are often linked to the level of fixed assets. Although the level of fixed costs and assets is often a function of the industry, companies can still choose between more capital equipment (fixed cost and asset) or more labour (variable cost). This choice should be based on which option is more productive and has the lowest cost.

It is difficult to reduce fixed costs and assets in the short term, however, since companies with high levels of fixed costs and assets tend to be more risky than those with lower levels, the objective is to keep fixed costs as low as possible.

Purchases of inventory or raw materials

Purchases are the biggest cost for most businesses. Retailers and wholesalers purchase inventory, while manufacturers purchase raw materials.

To reduce the cost of purchases:

  • Develop relationships with your key suppliers and discuss your specific needs with them.
  • To prevent outages and to test prices, ensure that you have more than one supplier for most items, especially your key and expensive items.
  • Regularly test prices to ensure you are getting the best possible price.
  • If possible, take advantage of discounts on large purchases and early payment.

Also see Inventory Management and Payables/ Creditor Management below.


Labour is another substantial cost for companies, especially manufacturing companies.

The objective is to increase productivity by:

  • Improving business processes,
  • Establishing performance and productivity standards,
  • Comparing actual performance with the established standards,
  • Using bills of materials and job cards,
  • Improving quality in order to reduce rework and scrap, and
  • Ensuring staff are properly trained and qualified for the position.

The net result is a shorter, more efficient production cycle, which reduces costs, assets, re-work, waste, scrap and waiting thereby improving cash flow.

2)  Reducing assets

Assets consist of fixed assets and working capital (current assets less current liabilities). Fixed assets include property, plant, equipment, motor vehicles etc. Current assets include stock/ inventory and debtors/ accounts receivable, while current liabilities include creditors/ accounts payable.

Fixed assets

Fixed assets, like fixed costs, are difficult to reduce in the short term and are typically a function of the industry the business operates in.

With a view to reducing your fixed assets:

  • Assess your level of vertical and horizontal integration in the value chain.
  • Determine where the value is in the value chain.
  • What assets in the value chain should you own and how do you control the other assets.
  • Are there opportunities for outsourcing or sale and leasebacks?
  • Consider leasing instead of buying.

Working capital management

The management of working capital is critical to a business. The objective of working capital management is to reduce the cash cycle.


Reducing the cash cycle is achieved by:

  • Reducing inventory/ stock – reducing the time (days) between buying and selling inventory.
  • Reducing receivables/ debtors – reducing the time (days) between selling inventory and receiving payment for the sale from your customer.
  • Extending payables/ creditors – extending the time (days) between purchasing and paying the supplier for the purchased inventory.


In a best case scenario, you will be able to sell and be paid for the goods you sold, before you have to pay your supplier.

  • Inventory management

Here we want to reduce the amount/ quantity and costs of inventory. Inventory costs consist of:

  • Carrying or storage costs → rent, insurance, material handling, obsolescence, and
  • Ordering and shortage costs → time spent ordering, paying and receiving the goods, transport, and loss of goodwill, sales revenue and production time.

There is an inverse relationship between these costs – carrying costs increase with higher inventory levels, while ordering/ shortage costs decline and vice versa. The goal of inventory management is to minimise the sum of these two costs.

  • Sell old or obsolete stock → selling at cost would be great, but the objective is to get rid of the stock, even if that means selling below cost price, and to generate cash while reducing your holding costs.
  • Reduce the production cycle → in manufacturing companies reducing the production cycle will reduce inventory levels since the time between purchasing the raw materials and selling the finished product will be shortened.

The ABC inventory management system

Divide all inventory items into 3 or more groups in terms of:

  • Inventory value (usage rate x individual value),
  • Order lead time, and
  • Consequences of shortages

Here the logic is that a small quantity of inventory might represent a large portion of inventory value.

  • Group A → consists of all high value inventories. Stock is kept to a minimum and all items are strictly monitored and tightly controlled. Precise ordering is important.
  • Group B → items are of medium value and require a medium level of monitoring and control.
  • Group C → inventory comprise basic, inexpensive items. These items are ordered in large quantities to ensure continuity of supply, while monitoring and control is not that important.
  • Receivables/ debtor control

Controlling receivables (money owed by our customers) is the key to cash flow management in any business. First establish a policy which, amongst other things, covers:

  • Who you grant credit to.
  • How you assess the granting of credit.
  • What your collection policy is.


  • Request down and milestone payments.
  • Invoice daily instead of weekly or monthly.
  • Offer cash discounts to encourage early settlement.
  • Closely monitor accounts taking swift action on overdue accounts.
  • Payables/ creditor management

Extend payables (money owed to suppliers) by:

  • Paying in terms of your payment terms → if terms are 30 days, don’t pay on 15 days.
  • Delaying payment without losing supplier goodwill or trade discounts.
  • Negotiating better terms with your suppliers.
  • Communicating and establishing relationships with your suppliers.

When choosing a supplier → negotiate and base your decision on both the purchase price and the payment terms.

Cash discounts are usually attractive and if possible, it is worth taking advantage of them.

1)  Improving processes and efficiencies

Improving processes and efficiencies reduces costs, assets, re-work, waste, scrap and delays/ waiting, thereby improving cash flow.

2)  Sales

As mentioned earlier in the article, an increase in sales does not necessarily improve cash flow. This is because, as sales increase a business needs more capital and ties up more cash primarily in inventory and receivables, but often also fixed assets.

However, without sales you don’t have a business, and you definitely won’t have a profitable business, since you will not have any revenues to cover your fixed and variable costs.

So what to do:

  • Prepare a forecast of your expected sales and expenses → take into account cyclical trends. Remember that sales are a combination of selling price and the number of units sold.
  • From the forecast, project your actual cash flow requirements and ensure that you have sufficient capital (cash) from shareholders and loans to meet your requirements.
  • Target sustainable growth levels.
  • Check your pricing and margins → how do your prices compare with your competitors and have your prices kept pace with your increasing costs?
  • Implement regular price adjustments → especially if you are an importer and your input costs vary with the exchange rate.
  • Ensure that you know:

}  The cost of manufacturing or purchasing a product.

}  The gross profit of each product.

}  How many of each product is being sold.

}  How much effort (time) is required to sell a product.

}  Your top customers by sales and profits.

While each of these elements has been discussed individually, they are all intertwined and woven together so reducing or increasing one element will often impact on the other elements and have a ripple effect throughout the company.

Business-Profits-Cash-Flow-Financial Management

Steven Delport is the founder of Integer Consulting Solutions (Pty) Ltd. Integer Consulting Solutions helps: • Improve business performance and strategic direction, • Understand finance and business acumen, and • Develop individual’s knowledge of self. This three pronged approach helps improve profitability and cash flow while integrating strategy, operations and finance. Steven holds both a MBA and a Certificate Programme in Leadership Coaching from Wits Business School. He has extensive business experience having worked in the banking and consulting industries for more than 20 years and works with a number of business schools in the areas of strategy, finance, leadership development and coaching. For more information, please visit and find him on Google+.

Cash Flow

How To Avoid The 3 Plagues Of The Financially Disabled

The quickest way to make more money is to better manage the income you already have.

Tucker Ferwerda




How consistent is your cash flow? Seventy-eight percent of Americans live paycheck to paycheck, and American consumers aren’t the only people affected. Many business owners struggle financially. Twenty percent of businesses go under within their first year of operation. People spend the first 18 years of their lives of schooling and trial-and-error, only to still find themselves in a rut for the rest of their lives – unless they master the art of managing money and cash flow.

Don’t become a part of a measly percentage. Rise to the top, and create something that will last. Create something that is evergreen that will also stand up against the powerful winds of the economic world.

If you’re looking to fight the financial epidemic and become financially free, whether you’re an uprising entrepreneur or a seasoned business owner, here are the three plagues of the financially disabled that you need to avoid at all costs.

1. They allow fear to guide all their decisions

Negative emotions will slow down your progress. Avoid being angry, negative, fearful and doubtful. Remove these feelings and replace them with hope, faith, power and positivity. Your vision, clarity and judgment become cloudy when you hold onto negative emotions. This prevents you from staying productive and leveling yourself up.

It’s not easy and will take some time to replace the negative feelings with positive emotions. Be patient with yourself and become self-aware of your daily thoughts. Are the majority of your thoughts negative or positive? Catch yourself red-handed in the act of thinking negative thoughts and quickly replace them with positive thoughts. Doing this consistently over time will change your habits which will eventually turn you into the money-making machine that you already are.

Related: Outsmart Cash Flow Problems With The Right Financing

2. They avoid learning from others

One of the quickest and easiest ways to fast track your success is to get help. Avoiding coaching and proper mentorship from the right people will keep you riding shotgun in the slow lane. Just like athletes need coaches and training to quickly reach the next level, you need to find the right help from those who are anywhere from two to 10 steps ahead of you. Don’t do any more than this. If you find someone who is too far ahead of you, you risk spending way too much time and money for something that is far out of reach.

You can recognise the pioneer by the arrow in his back. Don’t be a pioneer. There are people who have gone before you who can show you the cliffs and roadblocks to avoid. Here is what you should do instead – pay to play. You can either pay someone by exchanging your time or services for their specific knowledge or by paying cash.

This should be someone that you trust, that has consistent results and is doing what you want to do. Follow them for at least two to three months on social media to find out if they are real.

3. They spend more money than apply action

Does this sound familiar? You spend thousands of dollars on different products, services and events only to find yourself still in the same place? You become motivated for a short time only to become extremely frustrated that you’re not going anywhere. Stop doing this. Please refrain from buying too many things all at once. What you need to do instead is follow a 3-step method – scan, soak and apply.

First, scan what you need to learn. Just like I teach my students, learn what you’re trying to learn as fast as possible without trying to understand everything. Next, you need to soak it in. Learn what you need to learn for understanding and context. You will notice that you are understanding more, and you’ll catch things that you missed on the first scan of the information. Since you’re understanding more, now is the time to apply what you’re learning. Take time, be patient and apply the steps you’re learning. Do this repeatedly until you’re consistently taking action on what you learned.

By avoiding these three plagues, you’ll instantly start to notice yourself getting more done with the time that you have. This will help you stay on track to becoming financially free and living the lifestyle you want. The best time to start was yesterday. The second best time to start is now.

Related: 6 Things You Need To Know About Profit And Cashflow

Do your future self a favour. Pick one of the easier steps above and start working on it. After you feel comfortable with a step, pick the next best. Then complete the last step, and you’ll start to see the cash flow coming in easier and more consistently.

This article was originally posted here on

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Cash Flow

The Future Of Finance: Are Universities Prepared?

Producing graduates for the world of finance is an expensive, specialised and time-consuming business. Can universities keep pace with the requirements of a rapidly changing industry?





Financial services needs a highly-skilled workforce and higher education institutions are struggling to keep up, especially as persistent technological progress disrupts financial institutions and the markets and societies in which they operate.

At the heart of the problem lies a traditional university system that can only produce a relatively small number of graduates for the sector through programmes that may take three to four years to complete. To compound this, universities are expensive and highly selective, which effectively bars many from getting the training they need.

Professor David Taylor, Director of the African Institute of Financial Markets and Risk Management (AIFMRM) at UCT, is considering the long-term. He doubts that the current structure and cost of a traditional postgraduate degree is either effective or sustainable.

AIFMRM is one of the country’s pre-eminent postgraduate training facilities offering three specialised Master’s degrees that produce roughly 60 highly-skilled graduates for the financial services sector each year. The Institute’s MPhil specialising in Mathematical Finance was recently ranked 59th worldwide, and Taylor says that AIFMRM works closely with industry to ensure that the graduates they are delivering are aligned with industry needs.

“We know that AIFMRM’s offering is excellent for current financial industry needs,” he says, “but as a forward-thinking institution, we need to be contesting the status quo too. Perhaps it is time for industry and educators to assess what will be needed in the future and to find a model that will be affordable, accessible, efficient and sustainable.”

 Is a traditional degree sufficient for an exponential world?

Akin to Taylor, Colin Iles, consultant and CxO of the Absa Equinox Leadership Centre, believes the traditional degree system may be too slow to respond to changes in any industry. “Educational content has to be curated in a safe and structured way, with approved credits and standardisation – it is a slow system, and there is a danger of taught-content falling behind what is relevant,” he says.

Iles suggests that some of today’s necessary skills have already deviated from those acquired in a traditional degree programme. He says, “The FinTech movement has given rise to thousands of small entrepreneurial companies trying to solve various problems in unique and differentiated ways. Instead of a comprehensive degree that tries to cover every economic model and mathematical proof, you may become more relevant, quicker, by focusing on what you need to learn for that particular space and time. Then apply your knowledge and learn faster by actually building something in an entrepreneurial environment.”

Iles believes the way forward involves re-defining the purpose of the modern university. “If its purpose is to prepare people to be valuable citizens in the global economy, then the traditional university model, which has been in place for hundreds of years, may be outdated for a world that is exponential.”

He adds that universities could offer more customised, shorter sets of focussed learnings, at scale, online. “Even in complex topics, online learning is proving to be highly effective, with rapid feedback, self-paced learning and class interaction.”

Online education is a rapidly growing field. Class Central, which curates a catalogue of Massive Open Online Courses (MOOCs) recently reported there are currently 11 400 MOOCs provided by over 900 universities, catering to 101 million students worldwide. Business and technology comprise almost 40% of the available courses. There has also been a concurrent increase in online degrees.

Blended and flexible offerings may be the solution

CEO of edX, Anant Agarwal, believes that future-proofing higher education starts with re-inventing the degree. In a recent Quartz series on the future of college, he predicted that employers will soon be searching for what diverse skills people have rather than what degree they possess. So, programmes need to become more flexible.

Agarwal imagines a future where students could, for example, combine humanities skills with tech skills, or analytical skills with design skills – building a degree for a customised skill-set. Smaller, modular credits could combine into a degree from a variety of universities.

“This will be good for higher education institutions. A college or online platform could specialise in certain subjects and offer the components of education their instructors truly excel in. When each university can focus on what it does best, both the educators and the educated will benefit,” says Agarwal.

He also notes that students pursuing on-campus degrees will benefit from this model as they will be able to augment their education with specialised, online modular content from other institutions.

Kumeshnee West, Director of Executive Education at UCT’s Graduate School of Business, agrees that technology can augment face-to-face learning – but not replace it. She advocates a balance of online and classroom learning – especially when it comes to the development of soft skills and emotional intelligence, which are key strengths needed in the workplace of the future according to the WEF Future of Jobs Report 2018. 

The rise of life-long learning

Gert Kruger, Chief Risk Officer at Rand Merchant Bank, believes that institutions such as AIFMRM that provide multi-skilled graduates from a variety of academic backgrounds are the first step in keeping pace with what industry needs.

“Also, we need to teach people how to think and how to learn new skills all the time. Possibly teaching more of the soft skills – collaboration, creativity, flexibility and adaptability – may make people adaptable enough to continue learning and re-learning. Organisations need to re-skill people with higher frequency than in the past. Importantly, life-long learning needs to be organisation-wide.”

He adds that the financial industry is continually evolving, but it is challenging to anticipate how organisations – and the skills they require – need to change. However, one thing is clear – “if we do not evolve, we will stagnate. Organisations need to keep abreast of change by making ongoing incremental refinements.”

This is true for universities as well, says Professor Taylor. “Universities are well placed to use their resources and deep expertise to build on what they have, to remain relevant in the future.”

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Cash Flow

Benefits Of Automated Cash Management

Every entrepreneur knows that cash is the lifeblood of a business, but few realise that the way one manages cash, can be the difference between success and failure.

Cash Connect




Automated cash management has become a vital component of every cash-centric business, particularly in the retail trade. As much as the use of credit cards and online banking is encouraged, consumers remain sceptical and nervous of internet fraud and cybercrime and continue to prefer hard cash as the primary means of transacting.

The days of physical cash are not numbered. Current cash in circulation is approximately R140 billion, having grown from R119 billion in 2014, according to the South African Reserve Bank and according to a recent banking report, cash represents close on 90% of all transactions in South Africa.

If you run a business, some of this cash will find its way into your cash register (or, heaven forbid, the envelope you hide in the fridge until you make the trip to the bank). As a business owner, it is your responsibility to keep your cash safe, not just in the interests of profitability, but in the interests of the welfare of staff and customers who could be caught in the cross fire of armed robbers who almost always, get to know what you have been up to!

According to Richard Phillips, joint CEO of Cash Connect Management Solutions, cash automation is the way to go. “Automated cash handling saves money and time, allowing retailers to focus on their core business and greatly improves their risk profile,” he says. And don’t think your enterprise is too small to automate, as cash, whether small or large in volume, remains high on the criminal agenda.

But the real commercial advantages of cash automation are often hidden by safety and security considerations. The advantages of an automated cash handling solution are and should, do much more than giving your cash a safe ride to the bank. Just have a look at what the Cash Connect solution, arguably the most advanced of its kind in the local market could do for you:

1. Increased business efficiency

Bill Gates once said that automation applied to an efficient operation will magnify the efficiency. It is certainly true for automated cash management. It’s fast, accurate and error free. It eliminates all staff touch points associated with manual reconciliations and banking, which gets rid of shrinkage and double count supervision. It lowers insurance and other overhead and back-office costs, along with your exposure to crime, both in store and en-route to the bank.

2. Improved cash flow

With the right solution, your cash will reflect in your bank account on the same day that the cash-in-transit company collects from your premises. Cash Connect goes even further with its Instant Access feature, which allows access to the cash while still in the vault, converting the retailers’  cash into value whenever they need it.

3. Business continuity

Cash Connect guarantees the cash from the time it is deposited into the cash vault, whilst in transit and until the cash reflects in your bank account. This means that from a cash flow point of view, your business can not only survive most crises, but that business continuity is guaranteed.

4. Cost savings

In a manual cash handling environment, the combination of all the elements required to give effect to realising value in one’s bank account will vary with the actual monthly cash turnover; But on R1,5 million of cash receipts a month, the cost will be somewhere in the region of 135 basis points.

A corresponding integrated automated cash management service will cost in the region of 70 basis points.

As a matter of interest, card transactions cost the retailer anything between 300 and 500 basis points – reinforcing why, for the retailer, cash is the preferred medium of payment.

5. Access to alternative funding options

Imagine applying for a business loan, getting funding approval in one hour and having R1,8 million paid into your bank account within 24 hours. Far from a pipedream, this is what Cash Connect recently did for one of its retail supermarket clients under its Cash Connect Capital offering. You too can get fast, flexible, hassle-free, and unsecured growth finance when you need working capital to boost your business.

Having grown Cash Connect from an entrepreneur’s start-up to the success it is today, the Cash Connect team remains driven by the desire to empower and enable South Africa’s SME community and retail sector, by creating a trading environment that takes businesses from a place of safety to a place of growth.

And in today’s modern world, that is exactly how entrepreneurs should think about cash management solutions and how they can improve business efficiency and cash flow.


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