Cash flow forecasting: why profit is not cash
Many profitable businesses run short of cash. The reason is timing. Profit records income and costs when they are earned or incurred, while cash only moves when money is actually received or paid. A business can be profitable on paper and still struggle to pay suppliers if customers pay slowly.
A cash flow forecast closes this gap by showing, week by week, how much cash is expected to come in and go out. A rolling forecast covering the next 13 weeks is a popular format because it is detailed enough to act on and short enough to stay realistic.
To build a simple one:
Start with your opening cash balance.
List expected receipts, based on when customers actually pay rather than invoice dates.
List payments: payroll, suppliers, rent, loan repayments, taxes and other commitments.
Show the closing balance for each week and flag any week where it dips below a safe minimum.
The forecast is only useful if it is maintained. Update it every week, compare it with what actually happened, and learn from the differences.
Once you can see a shortfall coming, you have options: speed up collections, negotiate payment terms, delay non-essential spending or arrange funding in advance. Each is far cheaper than reacting to a crisis after it arrives. In short, profit tells you how the business performed, while cash flow tells you whether it can keep operating.