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What is Cash Flow? Money In vs. Money Out
What is Cash Flow? Money In vs. Money Out

Learn what cash flow is, how it differs from profit, and why it matters to your business. Here’s a simple start to understanding business cash flow.

BY Sarah Heron

5 MAY, 2025

Having cash flow problems in your business? You’re not alone.

In fact, they’re one of the most common issues faced by small businesses in South Africa today. A massive 72% of SMEs rely on personal funds to stay afloat, a short-term fix that can lead to long-term struggles. Another study found that nearly a third of business owners couldn’t pay vendors, loans or even their staff due to cash flow constraints.

But here’s the good news: it is fixable.

Cash flow problems often stem from not understanding what cash flow is and how it works. This isn’t a business-ending mistake. It's a red flag, and red flags are only useful if you know what to do when you see them. That’s why we’re asking: what is cash flow? By breaking down the most common causes of cash flow issues and giving you real, practical strategies, you can stop the issues in their tracks.

Want even more help? Join us at iKhokha Live on 29 May 2025. A free, live webinar that will unpack how to take control of your cash flow, answer your burning business questions, and learn from successful entrepreneurs like you. You’ll also stand a chance to win your share of R15 000 in spot prizes.

Save your spot here!

Wondering if you’re already in a cash flow crunch? Read this first: 10 warning signs you have cash flow issues in your business.

If you’ve already read that, the next step is clear. After working with small businesses for over ten years, we know it’s important to start at the very beginning: What is cash flow?

What is cash flow?

At its simplest, cash flow is about money in and money out. It’s the movement of cash into and out of your business over a period of time.

  • When more money comes in than goes out, you have positive cash flow, a sign of healthy finances.
  • When more money goes out than comes in, you have negative cash flow, which means your business may struggle to cover its day-to-day expenses.

Cash flow vs. profit

When we spoke to a group of small business owners, we uncovered a common misconception is that cash flow and profit are the same.

“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. 

Profit: Profit is what’s left after you subtract all your expenses from your revenue. It’s a snapshot of your financial success, usually calculated quarterly or annually.

Cash flow: Cash flow, on the other hand, is about the actual movement of money in and out of your business. It’s what keeps your operations running smoothly on a daily basis.

Real talk: Profit ≠ positive cash flow

Here’s why:

  • You could show a profit on paper but still face cash flow problems. For instance, if customers haven’t paid their invoices yet, you might not have enough cash to cover your expenses.
  • Even thriving businesses can struggle with cash flow if they don’t manage it properly.

As June mentioned above, a business can show a profit on paper but still struggle with cash flow.

Myth 1: Profit guarantees positive cash flow.

Truth: A profitable business can still face cash shortages due to delayed payments or high upfront expenses.

Myth 2: Only struggling businesses have cash flow problems.

Truth: Even thriving businesses can face cash flow challenges if not managed properly.

A step-by-step on how to easily calculate cash flow:

Start with your earnings (net income). This is the money your business made after covering all bills and expenses.

Check money coming in and going out:

  • If customers still owe you money, that’s cash you haven’t received yet.
  • If you’ve bought things but haven’t paid for them, that’s cash you owe.
  • If you’ve stocked up on products to sell, that’s cash tied up in inventory.

Let’s explore what cash flow is in action with a business example.

Meet Lungi. She runs a small mobile hair salon in Soweto, offering braiding, styling, and hair care services to clients around her community. Her business is growing nicely, but she wants to get a better grip on her cash flow.

Here’s a snapshot of her month:

Her net income (what’s left after she’s paid her bills and employees): R10 000

Depreciation expense: Lungi’s hairdryer and equipment lose value over time, and on paper, that’s about R2000. But she didn’t actually spend that money this month, so she adds it to her business net worth this month. 

R10 000 + R2000 = R12 000

Customer debt: Some clients haven’t paid yet, they still owe her R3000. That’s money she hasn’t received, so it gets subtracted.

R12 000 - R3000 = R9000

Supplier debt: Lungi bought products on credit from her supplier and hasn’t paid the full amount yet, she still owes R1500. That means the money is still in her pocket, so it’s added to her business net worth this month.

R9000 + R1500 = R10 500

Inventory purchases: She spent R2000 stocking up on hair products for future appointments. That cash is now tied up in stock, so we subtract it.

R10 500 - R2000 = R8500

Lungi’s total cash flow: R8500

In short: Lungi’s business brought in more cash than it spent this month. That’s positive cash flow, a good sign that her business is on stable ground.

Now, your turn.

Cash flow = cash inflows – cash outflows

Cash inflows: All the money coming into your business (sales, loan funding, investments, etc.)

Cash outflows: All the money going out of your business (stock, rent, wages, transport, etc.)

Do the maths: Cash inflows (R___) – Cash outflows (R___) = Cash flow (R___)

If your result is positive, you’re in a good place. If it’s negative, don’t panic. This guide is here to help you turn things around. 

Why cash flow matters

Understanding your cash flow gives you clarity and control. It helps you:

1. Pay your bills on time.

2. Invest in your business’s growth.

3. Weather slow periods without stress.

Cash flow is the foundation of financial literacy for any business owner and it’s important that you empower yourself to make better decisions for your business.

Prefer learning by watching? Head over to our YouTube channel for the iK Cash Flow Series. A free video guide to help you understand, manage, and master your business’s cash flow.

And if you want to level up even more, join us for iKhokha Live on 29 May 2025.

It’s a free online session where we’ll unpack the cash flow basics, share real advice from South African entrepreneurs, and even give away R15 000 worth of prizes.

Save your spot here!

Now you can answer, “What is cash flow?”

Now that you understand what cash flow is, you’re ready to start confidently repairing or protecting your business. So don’t forget to check back next week. We're diving into the real-world business impact of negative cash flow and what you can do to turn things around.

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