This is one of the most common reasons growing South African small businesses get into financial trouble — a full order book can create a false sense of security if cash isn't actually coming in fast enough to cover outgoing costs. Managing this gap, rather than just watching the profit figure, is often what separates a business that survives a growth spurt from one that collapses despite strong sales.
Frequently Asked Questions
What's the difference between profit and cash flow, in simple terms?
Profit is revenue minus expenses over a period, on paper; cash flow is the actual movement of money in and out of the business's bank account in real time.
What commonly causes a cash flow problem in an otherwise profitable business?
Slow-paying customers, overly generous credit terms, overstocking, or rapid growth that requires spending on stock and staff before the related sales revenue is collected.
What's a simple way for a small business to protect its cash flow?
Tightening customer payment terms, following up on overdue invoices promptly, and keeping a cash flow forecast, not just a profit and loss statement, as a regular management tool.