See it before it arrives
How to forecast cash for a South African small business
The single most common reason South African SMEs fail isn’t lack of profit. It’s lack of cash on the day cash is required. A business can be making money on paper, growing revenue every month, and still run out of money because the timing of inflows and outflows doesn’t line up. A cash forecast is the only tool that surfaces this gap before it kills you.
Profit ≠ cash
An example. You sell R500k of consulting work in month 1, on 60-day terms. You recognise revenue immediately — month 1 P&L shows the R500k. But the cash only arrives in month 3. Meanwhile salaries, rent, and supplier invoices need paying in months 1 and 2. You can be R500k profitable in month 1 and still default on rent in month 2. The income statement won’t show the problem until month 3 settles — too late to act.
This timing gap exists for every business that runs on credit terms. The forecast collapses the gap into one view: not what’s earned, but what’s in the bank, on the day the bank needs it.
The mechanics
Closing balance = Opening balance + Money in − Money out Next month opens with the previous month’s close
The maths is mechanical. The work is in being honest about timing. Cash in means cash in the bank — not invoices issued, not orders received, not promises. Cash out means cash out of the bank — not stock ordered, not bills received. The unit isn’t accruals; it’s bank transactions on the date they actually clear.
What goes in the inflow column
- Cash sales — point of payment.
- Credit sales — forecast by debtor age. If your average debtor pays in 45 days, an invoice issued today shows up in cash six weeks from now, not in the month invoiced.
- Existing debtors — invoices already outstanding. Schedule by expected receipt date, not by age — old debtors get older.
- VAT refunds— if you’re in a refund position, these can take 30–90 days from SARS.
- Loan drawdowns or capital — only when actually approved and dated.
What goes in the outflow column
- Salaries and wages — month-end (or whenever you actually pay).
- PAYE, UIF, SDL — 7th of the following month per SARS rules.
- VAT — by the last business day of the month following your tax period. Provisional taxpayers should also model provisional tax in months 2 and 8.
- Stock and suppliers — when invoices actually fall due, not when stock arrives. Use your supplier terms.
- Rent and utilities — fixed monthly.
- Loan repayments — capital plus interest, on the contract date.
- Owner drawings — easy to forget; matters as much as anything else.
- Lumpy outflows — insurance renewals, annual licences, equipment replacements, leave payouts. The crunches that surprise people are almost always these.
The lowest cash point is the number that matters
Most forecasts focus on the closing balance at the end of the period. That number is less important than the lowest point across the period. If month 2 dips to −R45k mid-month even though month 3 recovers, you still need a way through month 2. The bank doesn’t care that you would have been fine if it had just waited.
The forecaster surfaces the lowest closing balance across the three months. For a sharper view, model week-by-week instead — most businesses run their biggest outflows in the first week (salaries, rent) and the lowest cash point is typically week 1 of each month, not month-end.
When the forecast shows a crunch
Five levers, in order of speed and cost:
- Accelerate inflows — chase debtors aggressively, offer settlement discounts (2% for early payment is usually cheap), require deposits on new orders, switch slow debtors to cash-on-delivery terms.
- Delay outflows — negotiate extended supplier terms, time non-urgent purchases past the crunch month, defer owner drawings if possible.
- Cut discretionary spend — pause anything not keeping the lights on. Marketing campaigns, software subscriptions, training, travel.
- Raise short-term finance — an overdraft facility set up before you need it is much cheaper than emergency borrowing. Invoice discounting works for businesses with strong debtor books.
- Inject equity — owner contribution or external investor. Slowest and most dilutive, but sometimes the only option.
The earlier you spot the crunch, the more of these levers are available. Spotting it in the week is limited to option 1 (chase debtors) and option 4 (panic borrowing). Spotting it two months out opens up the whole list.
The discipline that makes forecasts useful
A forecast built once and forgotten is useless. The discipline:
- Update monthly— refresh with the actual closing balance from the month that just ended. Roll the forecast forward one month so you’re always looking three months out.
- Compare actual vs forecast — where did reality diverge from the projection? Usually it’s debtor timing. Adjusting next month’s assumptions based on what just happened is how the forecast gets better.
- Run a worst case — for any forecast showing thin headroom, model conservative assumptions: 20% lower inflows, 10% higher outflows, 30 extra days of debtor lag. If the worst case survives, you have margin. If not, act now.