Five rules for effective cash flow management

Fin24 blogger Anderson Lele writes:

MAKING sure that your company is a viable business means that you have to pay attention to and manage your cash flow effectively. Business experts agree that one of the most common reasons for the failure of small businesses is that they run out of cash.

As a successful entrepreneur, you know that careful consideration must be given regularly to your business operations; this also should include following some basic rules for examining and managing your cash flow.

1. Have a cash flow budget 

Even though you have a spreadsheet of your revenue and expenses, you need a sheet that reflects the timing of how and when cash flows into your company. It’s also critical to have projections of what you think your cash flow will be in the coming quarters.

You can base some of this information on your contracts and payment terms that you have with your clients. This budget will let you know if the cash flow that you have is adequate to cover the amount of expenditure that you have ahead.

Being alerted to shortfalls ahead of time can help you elicit help from others.

2. Keep your costs under strict control

Make cuts whenever and wherever you can to minimise your overheads. You’ll find that leasing furniture saves money, taking advantage of inexpensive marketing strategies helps, and doing some of the tasks that you might hire others to do can help you get through a difficult time.

It will be easier to add to the cost of overheads as your company grows rather than cut services and operations because your cash flow won’t cover the obligations that you have.

3. Don’t let your cash be slowed up in accounts

It’s imperative that your clients pay on time every time; by offering incentives for early payment you can improve the status of your finances.

You must send out your invoices after work is finished or the product has been supplied, track the records, and make sure that late payments are dealt with quickly and efficiently.

If you have a process in place, you’ll let your clients know that you expect payment when services or products are rendered.

4. Establish a payment reputation

In order to make sure that your company has a good reputation, you must meet your financial obligations on time.  Pay your bills when they are due and after you have established yourself as a professional company, ask for extended time if you need it.

5. Have a plan in place for shortfalls

If you have cash reserves on hand, your company will never experience a shortfall that can dramatically impact your bottom line.

If you can’t manage to have some savings ready for an emergency, by doing an examination of your cash flow projections you can arrange recruitment finance which will alleviate your cash flow problems until you have enough funds to cover your costs.

If you simply follow the rules listed above, you’ll find that your company will be a vibrant, thriving business with funds that cover expenditure effectively.

– Fin24

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The South African economy slipped into recession during the second quarter of 2018, shrinking by 0,7% quarter-on-quarter (seasonally adjusted and annualised). This followed a revised 2,6% contraction in the first quarter of 2018.

The widely recognised indicator of recession is two (or more) consecutive quarters of negative growth (real GDP quarter-on-quarter). South Africa experienced its last recession during the 2008–2009 global financial crisis with three consecutive quarters of economic decline.

The 0,7% downturn in the second quarter of 2018 was a result of a fall-off in activity in the agriculture, transport, trade, government and manufacturing industries.

Agriculture production fell by 29,2%1 in the second quarter of 2018, following a 33,6% slump in the first quarter. This was largely driven by a decline in the production of field crops and horticultural products. Continued drought conditions in Western Cape and a severe hailstorm in Mpumalanga, resulting in extensive crop damage, also placed additional pressure on production in the second quarter.

The transport industry contracted by 4,9%, largely a result of decreased activity in both land and air transport. Industrial action within the industry, combined with a decline in freight transport, contributed to the slowdown.

The trade industry experienced its second consecutive quarter of negative growth, falling by 1,9%. Subdued sales in both motor and retail trade contributed to the decline. South African household consumption expenditure fell in the second quarter of 2018 compared with the first quarter of 2018, in line with the fall in retail trade sales. Households spent less on products such as transport, food, beverages and clothing.

Government activity decreased by 0,5%, largely as a result of falling employment numbers in the civil service.

Manufacturing was the third industry to record a second consecutive quarter of negative growth, following in the footsteps of agriculture and trade. Manufacturing activity fell by 0,3%, driven by a fall in the production of electrical machinery, transport equipment (including motor vehicles), and products within the furniture and ‘other’ manufacturing division.

Mining, construction, electricity, finance and personal services experienced positive growth, but not enough to lift overall economic growth out of negative territory. Mining’s growth rate of 4,9% was largely spurred on by a rise in the production of platinum group metals, copper and nickel. Construction activity increased by 2,3%, driven by a rise in non-residential buildings and construction work activities.


For more information, download the latest GDP report and media presentation here.

1 Unless otherwise stated, growth rates are quarter-on-quarter, seasonally adjusted and annualised, and in real (volume) terms.

Similar articles are available on the Stats SA website and can be accessed here.

For a monthly overview of economic indicators and infographics, catch the latest edition of the Stats Biz newsletter here.



According to the figures from the Quarterly Employment Statistics (QES) survey, released by Statistics South Africa, the total number of jobs reported in the second quarter showed a decrease of 69 000, bringing the total number of persons employed in the formal non-agricultural sector of South Africa to 9 748 000.

Job losses were reported in the community services industry, with 67 000 jobs shed. These jobs were mainly casual work and were observed in the extra-budgetary account sub-sector that employed staff due to next year’s national election registration drive.

The mining industry continued to shed jobs for the fourth consecutive quarter with 2 000 jobs lost in the second quarter of 2018, while the manufacturing industry lost 13 000 jobs. There was a slight decrease in the transport industry, with 2 000 jobs shed. Moderate gains were reported in the trade and business services industry with the adding of 7 000 jobs each, followed by the construction industry with a slight increase of 1 000 jobs. The job level in the electricity industry remained unchanged in the reference quarter.

Year-on-year, formal sector jobs rose by 13 000 in the second quarter of 2018 compared with the same period of 2017.

There was a decrease of R5 billion in gross earnings from the previous quarter. The total amount of gross earnings paid for the quarter was R627 billion. The decreases in earnings were led by the business services industry with R12 billion. This was followed by the mining industry with R699 million.

Increases in earnings were reported by the community services industry with R3,5 billion. This increase was followed by the transport industry with R2,3 billion; construction industry with R1,1 billion; manufacturing industry with R570 million; trade industry with R307 million; and electricity industry with R94 million.

Average monthly earnings were measured at R20 176 in the formal non-agricultural sector of the economy in May 2018. This is an increase of 1,6% compared with February 2018. A year-on-year increase of 3,7% was reported from R19 444 in May 2017 to R20 176 in May this year.

There was a year-on-year rise in gross earnings by 4,5% from R600 billion in the June 2017 quarter to R627 billion in the June 2018 quarter.

For more information, download the Quarterly Employment Statistics, Q2:2018 report here.


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Source SARS

The number crunchers at the DA have tallied up the amount of irregular, fruitless and wasteful expenditure in government departments and state-owned entities (SOEs) and it comes to a staggering R100,9 billion.

Earlier this month the DA put the figure at about R76 billion. But that was before it had sight of the “serial mismanagement” offenders at SAA, SA Express and Denel. As those reports dribbled in, the figure shot to more than R100 billion.

To put that in some kind of perspective, this is equivalent to 6,7% of total revenue budgeted for 2018/19.

An analysis of 2017-18 financial reports submitted to Parliament by government departments and entities has revealed irregular expenditure of R72,6 billion.

One has to sympathise with the Auditor General who has to wade through the thicket of graft and misspent money year after year.

To get a sense of how bad things have gotten, take a look at just one government-owned entity, the Passenger Rail Agency of SA (Prasa). Its latest annual report for 2018 shows:

  • Irregular spending of R24,2 billion
  • Fruitless and wasteful expenditure of R1 billion
  • A net loss for the year of R925 million.

The AG issued Prasa with a qualified audit opinion, due to the large amount of dodgy spending, and the unclear accounting of passenger fares. Despite spending all this money, the entity achieved only 21% of its performance targets.

“Prasa’s results are a slap in the face to all those commuters who queue for hours attempting to catch trains that never arrive. With fuel prices sky-rocketing and 9.6 million unemployed, the neglect of the train system that provides vital links to jobs clearly shows that the ANC does not care about the daily struggles of South Africans,” says DA spokesperson on Access to Jobs, Geordin Hill-Lewis.

“Prasa also joins the list of departments and entities that the AG has expressed serious uncertainty over their ability to remain a going concern. There are now eight entities and one department at risk of financial collapse, in addition to the commercially insolvent SABC,” These are mind-boggling figures that in the private sector would result in mass firings or jail sentences. In the revolving door public sector, this is the result of cadre deployment and a culture of insouciance. When there are no consequences for mismanagement, mismanagement continues.”

Fruitless and wasteful expenditure across all state entities and departments came to R4,1 billion. This is money that could have been saved if reasonable care had been taken. For example, the SABC spent thousands of rands transporting board members to Cape Town for the SABC Board Inquiry‚ but then refused to appear before the inquiry. Easy when it is other people’s money.

This R4,1 billion is enough to fund the salaries of over 22 000 police officers or 21 000 nurses. Or 100 new schools.

The DA says irregular expenditure across all departments and government entities stood at R42,8 billion. The figure for the most recent year is double that of the previous year and does not include all departments and entities as some are yet to table their report. Irregular expenditure occurred when expenditure was not properly managed and was sometimes an indicator of corruption.

Eskom had the largest sum of irregular expenditure of all departments and entities with R19,6 billion‚ followed by Sanral (R10,5 billion)‚ Transnet (R8,1 billion)‚ Department of Water and Sanitation (R6,2 billion) and the SABC (R5 billion).

However‚ this is not the full picture, says the DA. “The Auditor-General also highlighted departments where irregular expenditure was identified that was not included in their reported figures.”

The Department of Police was cited for not including irregular expenditure of R968 million in its financial statements‚ leading to a qualified audit opinion.

The AG certainly has one of the toughest jobs in the country, documenting and investigating spendthrift government entities. We are repeatedly told that efforts have been made to clean up management at Eskom, SAA and other SOEs, yet the results continue to shock and amaze. To loosely paraphrase former UK Prime Minister Margaret Thatcher, we are fast running out of other people’s money.


Source Accounting Weekly