Managing the money coming in and out of your business can feel like carrying your grocery packets into the kitchen, except your packets are on fire. It can feel especially trying when payday looms, and the business bank balance doesn’t inspire confidence.

For many (and we mean many) South African entrepreneurs, it’s a challenge they know quite well. In fact, a whopping 72% of business owners struggle with cash flow issues. But there’s good news: by understanding cash flow and flagging the warning signs early, you can take control and set your business up for success.

This guide will equip you with the knowledge and strategies to:

• Understand the warning signs of cash flow problems.
• Learn the difference between profit and cash flow.
• Mitigate the negative impacts of poor cash flow on your business.
• Navigate the challenges poor cash flow has on your mental health.
• Track and improve your cash flow effectively and develop healthy habits for long-term success.

Red flags everywhere (what warning signs to look out for)

If you think you might have cash flow issues but don’t know what to look out for, we did some research and identified 10 warning signs to look out for:

Here’s a few that you might be noticing:

• You’re not paying your staff on time: People have families to feed and bills to pay, you know that better than anyone.
• You’re making late payments to suppliers and vendors: You know what it feels like when someone who owes you doesn’t pay you on time, and you know that kind of misstep can be harmful in a professional relationship.
• Your customers aren’t paying you on time: Late customer payments mean you go into debt, and we believe there’s a big difference between being kind and shooting yourself in the foot.
• You have reduced credit limits or cancelled credit lines: Credit should be an emergency life raft, not a cruise ship. And you should always have access to your life raft in case of emergencies.
• You’re unable to invest in growth or improvements: Big regrets come from missed opportunities, and your business deserves to grow.
• Your cash reserves have decreased: If there’s one thing we’ve learnt in business, it’s that there will always be an emergency that you need cash reserves for. Equipment will break and storms will weather – you must be financially prepared for it.
• Each slow period is worse than the last: Downtime in a business is an inevitable fact, but you can anticipate and strategically plan for it.
• You’re dipping into personal funds: Treating your savings like a business safety net can confuse how much money you think you have vs how much you actually have.
• Your debt is catching up with your income: It’s a tale as old as time. “Debt is the slavery of the free”. If you’re spending too much time paying back debt, you’re always going to be shackled to negative cash flow. 
• You’re ignoring the numbers: We’re determined to not let numbers bury you. Cash flow knowledge can be your superpower.

Now that you’ve uncovered some red flags, hidden or glaring, it’s time to understand what they mean, and how they fit into the wonderful world of cash flow. So, if you’ve never heard the term “cash flow” up until now, you’re in the right place.

What is cash flow, really?

You’ve heard the phrase “cash is king” but right now, it feels like your crown is wobbling. You’ve done the work and spotted the signs, but now we need to move forward and understand how to make money, and better yet, how to manage it.

We’ve found two potential shortfalls most South African business owners are encountering:

1. We spoke to a group of small business owners, and we found that many of them are confusing cash flow and profit. 

“What often confuses me about cash flow is distinguishing it from profit. While profit measures the difference between revenue and expenses, cash flow focuses on the actual movement of money, which means my business can be profitable but still face cash flow issues if it doesn't have enough cash on hand to pay its obligations.” - June, owner of Kamango

2. Because many South African business owners are confusing the two terms, they are also confused about how to calculate cash flow.

Let’s do the simple sum together:

Cash Flow = Net Income - Accounts Receivable + Accounts Payable - Change in Inventory

Net Income: Your profit after all expenses.

Accounts Receivable: Money owed to you by customers (subtract).

Accounts Payable: Money you owe to suppliers (add).

Change in Inventory: Increase in inventory is subtracted (money tied up in stock).

Once you understand what cash flow is, why it’s different to profit and how to calculate it, you might just become the king of cash. If you’re still slightly confused, that’s ok!

It might be difficult to imagine how this number could have such a huge impact on your business, and what that even looks like, so we’ve done some research on areas that negative cash flow might be affecting your business, and what that realistically looks like for an entrepreneur day-to-day.

The business impact of poor cash flow

When cash flow is a constant struggle, every part of your business feels it, even parts you may not expect. We’ve identified some common areas in business that may be lacking due to poor cash flow management:

Inventory shortages: Running out of stock means lost sales and unhappy customers.

Project delays: Unable to pay for labour or materials leads to missed deadlines and frustrated clients.

Marketing drought: Reduced advertising budgets cripple your ability to reach new customers and grow your market share.

Demoralised team: People don’t hide financial stress well, which means the worries you have will soon trickle down into your team and lower employee morale or cause late paychecks.

Strained relationships: Running a business often means you know the game of suppliers like the back of your hand. Late payments can affect trust with those suppliers and lower your credibility in the industry.

Lowered valuation: Poor cash flow significantly impacts your business's value, making it harder to attract investors or secure loans.

Eroding trust: Suppliers and customers lose confidence in your ability to deliver, jeopardising future business.

Burnout and stress: The constant worry and pressure of financial instability takes a toll on everyone in the business.

Funding limitations: Lenders are hesitant to invest in companies with poor cash flow, limiting your growth potential.

Ultimately, poor cash flow can lead to business failure.

Managing cash flow requires a proactive approach, which means identifying the potential impacts cash flow might be having on your business and working through that list to solve each one.

Working through that list, you might have noticed that some of your issues are more psychological than you thought. That’s because negative cash flow doesn’t only affect your business, it affects your mental health, too. And we all know that you can’t fix one without addressing the other.

A cash flow emotional rollercoaster (the psychological effects of financial stress)

72% of business owners struggle with depression and anxiety, cashflow often being one of the culprits. When your business is your lifeline, the thing you rely on to keep food on the table and the lights on, its survival can take a serious toll on your mental wellbeing.

If you’re battling with any of the below, it might be a sign that your cash flow is more of a concern than you think:

• Constant worry about meeting financial obligations.
• Doubts about the business's future and ability to provide.
• Feeling responsible, guilty and ashamed for financial struggles.
• Questioning or doubting business decisions and abilities.
• Withdrawal from social connections due to financial stress.
• Long hours, sleep deprivation, and mental fatigue.
• Tension with family, friends, and partners due to financial stress.
• Neglecting self-care, exercise, and healthy habits.
• Lack of enthusiasm and passion for the business.
• Narrowed focus on survival rather than innovation.

After all this work, we think you might just be ready to tackle the biggest challenge of them all: implementing your good habits, sticking to them and planning for a long life of healthy cash flow strategies. Don’t give up now, the hardest parts are almost over, and you are about to be fully equipped to become the best in the game.

It’s time for your cash flow comeback

Let’s take a moment for you, the entrepreneur who decided that cash flow struggles are no longer going to be part of your story. Well done. In this guide, you should have learnt the importance of cash flow and how to identify and address its challenges. Now, it’s time to take action. Whether it’s adopting healthier habits, implementing emergency strategies, or investing in long-term solutions, you’re building the foundation of a more resilient business.

At iKhokha, we believe our business is not that different to yours. But after running for over 12 years, we’d like to think we’ve learnt some important lessons along the way, ones that we wanted to share with you. Which is why we’d like to walk this journey with you, and help you thrive with the best of our knowledge and yours! You’ve got this, and we’ve got your back. Together, we can turn the cash flow chaos into clarity and lasting success.

As we’ve discovered together, running a business comes with challenges, but you shouldn’t and don’t have to face them alone. The easiest way to create a smoother, more flowing cash flow is with the iK Debit Card. With same-day payouts 365 days a year and zero monthly fees, it ensures you always have funds available exactly when you need them.

Smarter bookkeeping with iK Accounting, real-time insights with iK Dashboard and seamless transactions with iKhokha card machines are tools that will help your business thrive, on top of tackling your cash flow issues.