Understanding Cash Flow Management

Small business owners usually have a common problem of “the struggle to maintain adequate cash flow levels for their businesses”. Without Money or in this case cash, a business can eventually close its doors. Understanding and managing your company’s cash flow properly will help you measure the amount of cash on hand and prepare for cash flow shortfalls in the future.

Here is a quick guide to managing Cash flow.

• Do the Mathematics
  Cash flow is the movement of money in and out of a business. Cash inflow is the movement of money into your business, and most likely comes from the sale of goods or services to your customers. Cash outflow is the movement of money out of your business, and is generally the result of paying expenses. By projecting the inflow and outflow of your businesses cash, you can determine the amount of cash that will be available during a designated period of time.
• Prepare a simple Profit and Loss Statement
  Your business plan should contain several financial statements. If you’re a start-up business, base your estimates of cash inflow and outflow on the revenues and expenses listed in your profit and loss statements. Complete your profit and loss statement before completing your cash flow statement. Over time, you will be able to base cash inflows and outflows on actual historical data.
• Develop a Cash Flow Statement for your financial in and outs
  A cash flow statement measures cash flow over time. During your first year in business, you should include a month-by-month cash flow statement in your business plan. If you’re seeking a loan, an important feature of your cash flow statement is that it will show the lender exactly how you’re going to afford loan payments.

  Selecting a business structure is one of the most important decisions business owners make, with wide implications for their financial success. Business structure affects safety of personal assets, taxation and smooth continuation of the business upon ownership change. Many businesses start out as sole proprietorships, partnerships or CCs. Both of these structures provide management flexibility. The primary risk to sole proprietors or partners, however, is personal liability for company debts. As a result, many business owners opt to incorporate or form a limited liability company (LLC) to protect their families and financial interests. Businesses may change structure at any time. Here are the five most critical items to consider when selecting-or re-selecting-your business structure.

• Protection of personal assets-Sole proprietors and partners or CCs have unlimited personal liability for business debt or law suits against their company. Creditors can attach homes, cars, savings or other personal assets. Incorporating or forming an LLC helps separate your personal identity from your business identity. Corporation shareholders or LLC members have only the money they put into the company to lose.
• Pass-Through Taxation-For sole proprietors and partners or CCs, company profits/losses pass directly through to their personal tax returns. For corporations, profits are taxed, then the profits that are distributed to shareholders as dividends are taxed again on the personal level. This "double taxation" can be avoided while still enjoying the benefits of personal asset protection by forming an LLC or by electing an S Corporation. S Corporations and LLCs are taxed just like partnerships.
• Tax Deductible Employee Benefits-Incorporating or forming an LLC usually provides tax-deductible benefits for you and your employees, an advantage that sole proprietors and partners do not typically enjoy. Even if you are the only shareholder or employee of your business, benefits such as health insurance, life insurance, travel and entertainment expenses may now be deductible. Best of all, corporations and LLCs usually provide an increased tax shelter for qualified pensions or retirement plans.
• Uninterrupted business-Sole proprietorships and partnerships or CCs may automatically end or become legally entangled when one owner dies or retires. Corporations and LLCs are enduring legal business structures. They may continue regardless of individual officers, managers or shareholders. Corporation ownership may be transferred, without substantially disrupting operations, through sale of stock.
• Access to Capital-Sole proprietorships and partnerships or CCs may find investors hard to attract because of personal liability. Investors are more likely to purchase shares in a corporation where there is a separation between personal and business assets. E.g a (Pty) Limited

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