Top Ten Tips for Maintaining a Strong Cash Flow

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“Never take your eyes off the cash flow because it’s the lifeblood of business.” (Sir Richard Branson)

Managing cash flow is often one of the biggest challenges business owners face and is also the reason for a concerningly large percentage of business failures.

Cash flow can be defined as the total amount of money that comes in and then goes out of a business and – crucially – the timing between cash flowing in and cash flowing out.

A positive cash flow means the business earns more than it spends and is a key indicator of the financial health of your business. A consistent, positive cash flow ensures there is cash on hand to cover payroll, expenses and loan repayments on time and enables business growth by ensuring cash is available for timely equipment purchases and upgrades, and investment in new opportunities that arise.

As such, proper cash flow management is key to your short – and long-term financial success, and cash flow strategies should be a priority in your business planning. Good cash flow planning will allow you to predict when money can be expected to be received, and when it must be paid out. With this information, you can plan ahead and make smart business decisions.

Implementing the ten top tips below for maintaining a strong cash flow will ensure businesses can enjoy all these benefits in a short time and with little effort.

  1. Increase sales – More sales are obviously the preferred strategy for a business to grow the amount of cash flowing into the business, and it provides more benefits than other options such as liquidating assets or taking out a loan.
  2. Collect client payments quickly – Late payments from clients are one of the most common reasons why businesses experience cash flow problems. Manage this proactively by invoicing clients promptly and sending monthly statements early. Verify the invoice was received, and contact late payers well in advance, reminding them to pay on time. Follow up on late payments right away, offer discounts to clients who pay early, and implement a cash-on-delivery policy for chronic late-payers.

    You could also consider requesting deposits when taking orders, and if you offer credit to clients, make sure to do credit checks first and maintain stringent credit policies.

  3. Adjust inventory – Inventory that doesn’t sell well will also negatively impact your cash flow. Move outdated inventory and offload less frequently purchased items for discounted prices and don’t replace this stock – rather invest more into stocking items that do sell well.
  4. Manage and trim expenses – Cash flow reduces as and when expenses are paid, so managing your expenses better and eliminating unnecessary costs will immediately boost cash flow. Also consider other ways to conserve cash flow, such as leasing instead of buying equipment.
  5. Prioritise payments – Know exactly which payments must be made when, then order according to priority, and spread payment dates so the most important bills are paid first and the less critical account payments with more flexible payment dates are paid later. Where necessary, negotiate payment terms with your suppliers.
  6. Increase efficiencies – Take advantage of technological advances and artificial intelligence-enabled solutions, such as apps, software and equipment to streamline your business processes and increase efficiency. Also, consider identifying operations or tasks that can be cost-effectively outsourced to freelancers and third-party service providers.
  7. Use a business credit card – A well-managed business credit card could be used to pay day-to-day expenses during the month to free up cash. This will require keeping a tight record of those expenses and being disciplined in repaying the full balance within the interest-free period. It will also allow the business to benefit from any rewards programs that can reduce expenses, such as a certain percentage of cash back on some purchases.
  8. Keep a line of credit – A business line of credit can be a saving grace for small businesses and companies impacted by seasonality. It provides quick access to funds when needed, for example, to bridge gaps between invoicing and payment, to buy equipment, to cover seasonal or unexpected expenses, or to take advantage of growth opportunities. The business will have to negotiate such a facility before cash flow problems arise.
  9. Make your money work – At times, there may be a surplus of cash, for example, in seasonal businesses, and at these times, it is crucial to make sure this money works for the business. This can be achieved through building up a reserve fund for emergencies, which experts suggest should ideally be sufficient to cover six months of business expenses; making smart short-term investments and paying off debts faster to reduce interest and shorten loan terms. Consider investing any surplus cash, short-term or otherwise, in a money-market call account to earn interest rather than leaving it idly resting in the bank account.
  10. Use accounting expertise – Successfully monitoring and projecting cash flow often requires professional assistance. Alongside the balance sheet and income statement, the crucial cash flow statement is one of the three main types of financial statements. Generally covering three main areas: everyday business operations, investment activities, and financing, it reveals trends and allows potential cash flow problems to be identified and managed in time.

Projecting future cash flow requires assessing the previous year’s numbers as the basis of cash flow for the following year and then adjusting these numbers for anticipated changes, such as new pricing, more staff and new funding sources. Of course, these forecasts will change continuously, so it’s important to monitor cash flow on an ongoing basis.

Speak to your accountant about accessing cash flow reports regularly and for professional assistance in understanding what they reveal about your business, to enable more accurate and relevant business decisions.

Your Tax Deadlines for July 2022

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  • 7 July – Monthly Pay-As-You-Earn (PAYE) submissions and payments
  • 25 July – Value-Added Tax (VAT) manual submissions and payments
  • 28 July – Excise Duty payments
  • 29 July – Value-Added Tax (VAT) electronic submissions and payments & CIT Provisional payments where applicable.

Tax Season 2022 Now Open: Beware, This Year’s Deadlines are Shorter!

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“Few of us ever test our powers of deduction, except when filling out an income tax form.” (Laurence J. Peter)

In this article, we look at the who, how and when of this 2022 Tax Season; highlight some issues that require special attention; and suggest practical next steps to help you avoid the last-minute rush, the risk of errors and omissions, and the cost of late submissions, penalties and audits.

At a glance

Tax Season 2022 opens 1 July 2022 – here is a quick overview of who must submit, how they must do so and when by:

Who is exempt from filing?

  • Individuals receiving total annual gross income of less than R500,000 from only one source with no other allowances or benefits, and from whom PAYE has been deducted as per the prescribed tax deduction tables.
  • Individuals who are not claiming tax related deductions or rebates such as medical expenses, travel and retirement annuity contributions other than pension contributions made by their employer.
  • Individuals who only receive interest below the interest exemption thresholds; amounts from tax-free savings accounts; or dividends.
  • Individuals who are non-residents throughout the year.

Even if you could be exempt at first glance you might still benefit from filing a return due to your particular circumstances. If there is any doubt, professional advice is essential.


Issues requiring special attention

  • This year’s tax season is substantially shorter than last year’s for provisional, non-provisional, manual and branch office submissions!

    Last year, non-provisional taxpayers had until 23 November, extended to 2 December at the last minute. This year’s deadline is a month earlier, on 24 October 2022.

    Similarly, the 23 January 2023 deadline for provisional taxpayers is a week earlier. That’s less than seven months away, including the December and January holiday periods.

  • Home office expenses remain in the spotlight, as SARS disallowed over 60% of home office claims last year. Make sure you qualify for this deduction, and that it is correctly pro-rata calculated for allowable non-capital expenses such as rates and taxes, electricity, repairs and insurance. Deductions can’t be claimed for reimbursements or equipment provided by an employer without charge. Also be sure to understand the potential capital gains tax impact when you sell your home for which the deduction was claimed. Professional advice is essential here!
  • Last year more than three million taxpayers were auto-assessed, and significantly more individual taxpayers will be auto-assessed this year. If you are auto-assessed, SARS will send you an SMS that your tax return has been pre-populated by SARS on eFiling or the SARS MobiApp. Check with your accountant before making any decisions about your auto-assessment.
  • Be sure to check if your auto-assessment is correct as soon as you receive the SMS notification, because this year there is no need to “accept” the assessment: SARS will regard it as accepted unless changes are made as detailed below before the 24 October deadline. If an amount is due to SARS, the next step is simply to make the payment via eFiling or SARS MobiApp. If a refund is due to you, check that your banking details with SARS are correct and simply wait for the refund.If you don’t agree with the automated assessment, an accurate ITR12 tax return can be filed within 40 business days of the date of the auto assessment. If this return is filed after 24 October, it will be subject to normal late submission admin penalties and interest. If SARS accepts the changes, a reduced or additional assessment will be issued. If not, the normal objection and appeal options are available.
  • SARS has stated that Company Income Tax (CIT) filing compliance is currently a focus and urges companies to note that it is compulsory for registered companies that are required to file a return to do so on time and complete in all respects.
  • Non-compliance is as expensive as ever, with the same penalty rules for auto-assessments expected to apply for the 2022 filing season. The late submission admin penalty ranges from R250 to R16,000 a month for up to 35 months, depending on the assessed loss or taxable income of the taxpayer for the year prior to the year being assessed.

In addition, failure to submit the return(s) within the prescribed period could result in a summons and/or criminal prosecution, which upon conviction is subject to a fine or to imprisonment for a period of up to two years.


Next steps

  1. Get started immediately to avoid the last-minute rush, and to minimise the risk of errors and omissions. Diarise the key dates, allowing time to attend to any potential problems, such as finding documents, obtaining third party information or getting professional advice.
  2. Ensure all your information is correct. Update your personal information such as banking details, address and contact details on eFiling or the SARS MobiApp, and make sure all information provided on the return is true. SARS has significantly improved its abilities to draw information from third parties, including employers, financial institutions, medical schemes, retirement annuity fund administrators and other third-party data providers, making it easier than ever before for SARS to detect incorrect or undisclosed information.
  3. Check that you have received certificates and documents relevant in determining your tax obligations such as your IRP5/IT3(a)s and other tax certificates like medical certificates, retirement annuity fund certificate and other 3rd party data. If not, immediately contact the 3rd party data provider.
  4. Keep accurate records of all the calculations and source documents used as SARS may ask for these documents to be verified and/or for the calculations to be justified.
  5. Consider professional assistance to ensure all exemptions, rebates and deductions for businesses and individuals are included and that the many terms and conditions, dictating when and how these may be claimed, have been met. Last year, SARS refunded more than R17 billion to taxpayers.
  6. Plan ahead financially to meet the tax liability that will be due along with the submission deadline.