Practical Tips on Cash Flow
“Never take your eyes off cash flow because it’s the life-blood of business” (Richard Branson)
The Companies Act is underpinned by the assumption of liquidity and solvency – directors and owners are mandated to ensure the business can meet all its short term obligations.
The best way to achieve this is via cash flow.
As cash flow is fundamental to any business, this should be managed by senior management.
The starting point
Sit with your accountant and work out the monthly inflows and outflows from your bank statements. Put them into a spreadsheet and then review this frequently (weekly is desirable) until the cash flows start to get accurate. More importantly you begin to understand the patterns of your company’s cash flows.
Drill down
The most significant aspects of cash flow are:
- Sales. Can I reduce discounts/rebates without losing sales? Is it possible to sell different products to customers? How do I grow my customer base?
Ultimately, no business will flourish without growing sales. Also key to sales is managing debtors:
- How much contact do you have with customers? Getting to know them will reduce the chance of slow payment.
- How quickly do you respond to customer queries? Are credit notes issued promptly?
- Stock. Do you have a good forecasting system to balance not losing sales with minimising stock holding? Is slow moving stock quickly identified?
- Creditors. Do you maximise the possibilities with creditors, for example are all possibilities in terms of early settlement discounts taken advantage of?
- VAT. VAT should be included in your sales figures as well as your purchases, and your VAT return payments factored into your cash flow.
- Work out your free cash flow. This is the excess cash you generate after liabilities have been met. This is crucial to your business as it means you can finance new assets or pay more dividends. Essentially it gives you flexibility and more freedom to grow and run your business.
When you review your business after each month end, build in cash flow to the review. Many businesses now have free cash flow as a key performance indicator.
Cash flow is critical to any business – give it the attention it deserves. It will also give you a good understanding of how the business is performing.
Crypto Assets and Tax – From the Horse’s Mouth
“The future of money is digital currency” (Bill Gates)
If you are thinking of buying – or have bought – any “crypto asset” such as a crypto currency like Bitcoin, Ethereum, Polkadot, Solana (or any of the many other crypto currencies springing up all over the place), be aware of the tax implications.
For a new “from the horse’s mouth” perspective, read SARS’ webpage “Crypto Assets and Tax” here, first published on 27 August 2021 and providing guidance on (at date of writing – expect this webpage to evolve!) these questions –
- What is it?
- How did we get here?
- Do I need to pay tax on crypto assets?
- How will it work? (With an example of the ITR12 Income Tax Return for the 2020/21 tax year)
- How is SARS tracing crypto asset transactions?
There are still grey areas here – and many pitfalls – so be sure to take specific professional advice!
Directors: Fighting Corruption via Your Social and Ethics Committee
“South Africa has lost R700 billion to corruption over the last 20 years” (Institute of Internal Auditors)
The Companies Act requires a company to set up a Social and Ethics Committee if it is:
- A listed company
- A state owned entity
- A company with a public interest score of over 500 in two of the last five years.
Social and Ethics Committees have a broad mandate to reduce corruption, to ensure that B-BBEE and Employment Equity Act programs are compliant with legislation, to be a good corporate citizen uplifting society around them and to ensure all employees are treated fairly and equitably.
The Companies and Intellectual Property Commission (CIPC) is empowered to issue guidelines and practice notes on aspects of the Companies Act.
The CIPC guideline
The purpose of this guideline is to get companies to actively fight corruption and to set up a Corporate Compliance Program along the lines of the OECD (Organisation for Economic Co-operation and Development) Recommendation on corruption.
This initiative of the CIPC is a response to State Capture and to corruption scandals in the private sector. Corruption is becoming endemic in our society and can only be turned back and stopped by a comprehensive program.
The compliance program
- The starting point is commitment from top management to instil into the culture of the company that corruption is unacceptable across the organisation. Senior management should ensure that the Compliance Program is communicated on an ongoing basis to all stakeholders.
- A risk-based approach should be used to identify all potential corruption risks and on a continual basis manage these risks throughout the company. A database of all information gathered should be continually fed back to staff and stakeholders, and shared with other organisations fighting corruption.
All activities in the company should be undertaken with the risk management process underpinning these processes.
- An ongoing due diligence program should verify who the company is dealing with.
- Policies and procedures should be implemented and these should be clear-cut and easy to understand.
- Compliance training is to be undertaken and all staff and key stakeholders included in the training.
- Whistle blowing is to be actively encouraged and separate channels should be set up for whistle blowers to communicate any wrongdoing they become aware of. Whistleblowers need to be protected against reprisals and victimisation.
- A high level of auditing and investigative capacity needs to be implemented. Corruption, as we know, needs to be continuously attacked until it is completely uprooted.
We are all losers when it comes to corruption, so even if your business isn’t required to form a Social and Ethics Committee, consider what steps you can take to fight it.
Finally, don’t just follow the law and think that is enough. Those implicated in State Capture or private sector malfeasance protest they have broken no laws. Equally important is to practise good governance by implementing transparent and ethical norms.
