Cash Flow 101 for Small Businesses

A profitable business can still run out of cash. Profit is an accounting measure; cash flow is what actually keeps the lights on.

Key insights

• Timing differences between when income is earned and when it's collected are the most common cause of a cash squeeze.
• A rolling 13-week forecast gives enough runway to act on a shortfall without being too far out to be reliable.
• Cash flow forecasting is most useful when it's updated weekly against actuals, not built once and forgotten.

Building a simple 13-week forecast

1. 1

   List opening cash balance for week one.

2. 2

   Forecast expected cash inflows (collections, not invoiced sales) for each week.

3. 3

   Forecast expected cash outflows (payroll, suppliers, statutory payments) for each week.

4. 4

   Roll the closing balance of each week into the opening balance of the next.

5. 5

   Flag any week where the balance goes negative and plan a response in advance.