Why a profitable business can still run short of cash

Start with money received and money paid

A sale and its payment can fall in different months. Under accrual accounting, a business may recognize revenue before collecting the customer’s money. That difference matters when payroll, rent and suppliers must be paid.

A cash forecast starts with opening cash, adds expected collections and subtracts expected payments. Record both the amount and the timing: a larger invoice does not help this month if the customer pays next month.

A fictional service-business example

Imagine a business completes and invoices $18,000 of work in a month and incurs $12,000 of operating costs. In this simplified accrual example, operating profit before other items is $6,000. If it collects only $8,000 during the month and pays all $12,000 of those costs, operating cash falls by $4,000.

This illustration excludes taxes, debt payments, capital purchases and opening balances. Those need their own cash entries in a real plan. This is a fictional example, not a customer result or a prediction of your business.

Gather these five inputs

Use your records and label estimates clearly. A missing number is a question to resolve, not a reason to invent a precise forecast.

• Cash available at the start of the forecast.
• Expected sales and when customers are likely to pay.
• Operating costs and their payment dates.
• Taxes, existing loan payments and one-time purchases.
• A slower-sales or later-collection scenario to compare with the base case.

Turn the forecast into questions

Find the month with the lowest cash balance and the assumptions behind it. Compare what happens if a customer pays later or an expense increases. A forecast supports a discussion; it does not make uncertain receipts certain.

The Bright Future workspace connects a twelve-month cash forecast with a proposed financing plan and preliminary funding screens. Prepare your figures, then review the account terms before requesting a report.