You finish a busy month. Customers have bought your products, the income statement shows a profit, and the business appears to be growing. Then a supplier needs payment, a loan instalment falls due, and the bank balance cannot cover both.
How can a profitable business run short of cash? Profit and cash measure different things, and the timing of receipts and payments matters.
This guide explains the difference with worked rand examples and shows you how to build a rolling 13-week cash-flow forecast. The examples are illustrative, not results from a real client. Rand is used for readability; the same planning method works in other currencies.
Profit vs cash flow: the difference in plain language
Profit measures revenue less expenses for a period. Cash flow measures money actually moving into and out of the business. The cash balance is the amount held at a particular time.
Under accrual accounting, revenue and expenses are recognised according to the applicable accounting rules, which can put them in a different period from the related cash movement. An earned sale on credit can contribute to profit before the customer pays. Issuing an invoice alone does not automatically mean revenue has been earned.
Keep three questions separate
- Profit: Did the business earn more revenue than the expenses recognised for this period?
- Cash flow: How much cash came in and went out during the period?
- Cash available: What funds are actually available now, and what must they cover next?
A loan can increase your bank balance without creating sales revenue. Buying equipment can reduce cash immediately while its cost is recognised over time through depreciation, subject to the accounting treatment. You therefore need both a view of profitability and a view of cash.
Our margin-versus-markup guide explains the pricing side. A healthy margin helps, but it cannot make an unpaid customer invoice available to spend.
Worked example: R12,000 profit, but R6,000 less cash
Consider a small service business using accrual accounting. It begins the month with R20,000 cash. All R40,000 of its revenue is earned during the month, but customers pay only R32,000 by month-end. The remaining R8,000 is still receivable.
The simplified income statement is
- Revenue earned: R40,000
- Operating and interest expenses, all paid this month: R26,000
- Depreciation expense: R2,000
- Profit before tax: R12,000
During the same month, it also pays R8,000 for equipment and repays R4,000 of loan principal. The R2,000 depreciation is the total depreciation recognised for the month. Assume no other movements, no opening customer receivables and no changes in unpaid expenses. Tax and VAT are excluded from this teaching example.
The cash calculation is different
- Opening cash: R20,000
- Customer receipts: +R32,000
- Operating and interest payments: −R26,000
- Equipment purchase: −R8,000
- Loan principal repayment: −R4,000
- Closing cash: R14,000
Cash has fallen by R6,000 even though the business reports R12,000 profit before tax.
You can reconcile the difference: R12,000 profit + R2,000 non-cash depreciation − R8,000 increase in customer receivables − R8,000 equipment payment − R4,000 principal repayment = R6,000 cash decline.
The lesson is practical: a profit figure is not a spending limit. First check collections, commitments and payment dates.
Five reasons profit and cash move differently
1. Customers pay after you have done the work
A completed project can produce an earned sale while the customer still owes you. Meanwhile, wages, materials and subscriptions may already have been paid. Track each outstanding invoice, its due date, the expected collection date and any dispute that could delay payment.
For planning, use the date you reasonably expect the money to arrive. An invoice due today is not the same as a confirmed receipt today. If payment behaviour changes, revise the forecast.
2. Stock absorbs cash before it produces a sale
Suppose a retailer pays R15,000 for stock but sells only part of it this month. The cash purchase has happened. Under accrual accounting, stock still held is generally inventory; the cost of items sold is recognised as cost of sales when the related sales occur, with adjustments where required.
Buying more stock can support growth, but it also ties up funds. Review slow-moving items and the time between paying suppliers and collecting from customers. Avoid purchasing a large quantity solely because the unit price looks attractive.
3. Equipment and loan repayments affect cash differently from expenses
Equipment purchases may create an asset rather than an immediate expense for the full amount. Depreciation allocates its cost over time. Loan principal repayments reduce the amount owed; interest is treated separately as an expense, subject to the relevant accounting rules.
Your cash plan must include the actual equipment payment and the full loan instalment. If the instalment includes principal and interest, record both components once. Do not add the interest again if it is already included in that payment.
4. Owner funding and withdrawals change the bank balance
An owner putting money into the business does not automatically create revenue or profit. Likewise, owner withdrawals are not automatically operating expenses. Their accounting and legal treatment depends on the business structure and the nature of the transaction.
Keep personal and business transactions clearly identified. A company should classify salary, reimbursements, dividends and director-loan transactions correctly rather than labelling every payment to an owner as “drawings”. Include the actual cash movement in the forecast and get professional help with its treatment where needed.
5. The calendar creates pressure
Annual insurance, software renewals, seasonal stock purchases and payroll can land close together. Money received early may also be needed to deliver work later. An apparently comfortable balance can shrink quickly when several commitments fall due.
Tax payments belong in the forecast at their expected payment dates. If VAT or a similar sales tax applies, use a consistent cash basis that captures the actual tax-inclusive receipts, payments and settlement with the authority without double-counting. Confirm the treatment with your accountant. This article does not calculate tax liabilities or give filing deadlines.
Build a rolling 13-week cash-flow forecast
A 13-week forecast is a short-term planning tool with one column for each week. It looks ahead roughly one quarter and is updated as each week passes. BDC describes this rolling approach as a way to improve visibility over near-term cash needs.
It does not replace your income statement, balance sheet or formal statement of cash flows. Its job is to show when expected receipts and payments could leave you short.
Step 1: Establish the opening cash position
Start with reconciled bank and cash balances at a clear cut-off date. Identify restricted funds and amounts already committed. Show available overdraft or borrowing facilities separately; an undrawn facility is not cash already in the bank, and its use depends on its terms and availability.
Step 2: Put receipts in the weeks you expect to collect them
Use customer-level information where possible: cash sales, existing invoices, agreed deposits and milestone payments. Keep loans and owner contributions in separate rows from customer receipts.
For each large receipt, note the amount, expected date, supporting evidence and confidence level. Keep speculative sales outside the committed-receipts total or show them separately as assumptions. Do not count the same invoice as both an invoice collection and a new cash sale.
Step 3: List payments by due date
Include suppliers, payroll, rent, utilities, delivery costs, bank charges, subscriptions, loan instalments, equipment, owner payments and applicable taxes. Check annual and quarterly costs as well as ordinary weekly spending.
Use a single currency per forecast. If you receive foreign-currency payments, state the assumed conversion rate and expected fees, and test an adverse conversion outcome rather than assuming the gross invoice amount will reach your bank unchanged.
Step 4: Calculate each week's closing balance
Use this formula
Closing cash = opening cash + expected receipts − expected payments.
The next week's opening balance equals the previous week's closing balance. The Australian Government's cash-flow guidance uses the same opening-plus-incoming-minus-outgoing structure.
Do not force negative balances to zero. A negative projected balance is a warning that the plan needs action; it is not proof that an overdraft will be available.
Step 5: Set an operating buffer and test the timing
Choose a minimum cash buffer based on your essential payments, collection uncertainty and access to funding. There is no single correct amount for every business.
Also check the order of payments inside each week. A positive Friday balance does not solve a Wednesday payroll shortfall if the customer's payment arrives on Thursday. Use a daily view around tight periods.
A four-week example: the month-end total hides a shortfall
The following is the first four weeks of an illustrative 13-week forecast. It is a separate business example from the monthly profit reconciliation above. All amounts are rand. No funding facility or remedial action is assumed.
Week 1
- Opening cash / unfunded position: R6,000
- Expected receipts: R3,000
- Expected payments: R6,000
- Closing cash / unfunded position: R3,000
Week 2
- Opening cash / unfunded position: R3,000
- Expected receipts: R4,000
- Expected payments: R8,000
- Closing cash / unfunded position: R−1,000
Week 3
- Opening cash / unfunded position: R−1,000
- Expected receipts: R12,000
- Expected payments: R7,000
- Closing cash / unfunded position: R4,000
Week 4
- Opening cash / unfunded position: R4,000
- Expected receipts: R5,000
- Expected payments: R5,000
- Closing cash / unfunded position: R4,000
Across the four weeks, receipts total R24,000 and payments total R26,000. Opening cash of R6,000 therefore produces a projected ending position of R4,000. Yet Week 2 has a R1,000 funding gap.
The negative amount represents payments that cannot all be made as planned without action or agreed funding. Carrying it forward keeps the original gap visible; it is not an assertion that the bank permits a negative balance.
If an illustrative minimum buffer is R2,000, the Week 2 gap to that buffer is R3,000. If R4,000 of the Week 3 receipts arrives one week late, Week 3's projected closing position falls from R4,000 to zero, before any remedial changes. That is why timing deserves its own scenario.
Extend the same rows through Week 13. Review the lowest balance across the entire period, not only the final total.
What to do when the forecast shows a cash gap
First establish the cause. Is a sound job paying late, is stock building up, or are prices failing to cover costs? Each requires a different response.
- Confirm collections. Resolve missing documents and invoice disputes, contact the person responsible for payment, and obtain a realistic date. Update the forecast when the date changes.
- Review payment terms for future work. Consider agreed deposits, milestone billing or shorter terms where suitable. A deposit brings cash forward but may also create a delivery or refund obligation.
- Review discretionary spending. Identify purchases that can be delayed without breaching obligations or damaging delivery. Agree changes with suppliers rather than silently missing payments.
- Assess stock and equipment needs. Compare expected demand with cash tied up in purchases. Selling stock at a discount may release cash while reducing profit; calculate the trade-off.
- Evaluate funding carefully. Compare the total cost, repayment dates and whether future collections can support the repayments. Borrowing can bridge a timing gap, but repeated borrowing cannot by itself repair a persistently unprofitable offer.
- Escalate early. If the business may be unable to meet obligations as they fall due, seek qualified accounting and legal advice promptly. A spreadsheet cannot determine the appropriate legal response.
Be careful with early-payment discounts. On an illustrative R10,000 invoice, a 2% discount gives up R200 to receive R9,800. Compare that cost with the benefit of earlier collection, your margin and other options; do not assume a small percentage is automatically cheap.
A weekly routine that turns the forecast into decisions
Choose a regular review time and a person responsible for maintaining the forecast. Each week:
- Reconcile opening cash to actual records.
- Replace the completed week's estimates with actual receipts and payments.
- Explain material differences: late collection, unexpected cost or a permanent change in demand.
- Update the remaining weeks and add a new Week 13.
- Review the lowest projected balance and all weeks below the chosen buffer.
- Assign each corrective action to an owner with a deadline.
Keep a base case using reasonable assumptions and a downside case for delayed receipts or higher costs. Forecasts are estimates, so review them against actual performance, as Business Queensland recommends. Avoid treating a hopeful sales pipeline as a guarantee.
Start with records you can maintain consistently. Our Small Business Income & Expense Tracker can be a starting point for organising financial records. Check the product description for its current features; build the forward-looking weekly forecast separately where required. For pricing assumptions, use the Pricing & Profit Calculator.
If your records are spread across spreadsheets and payment exports, contact The Spokesdude Network to discuss organising the data and building clearer management reporting.
Frequently asked questions
Can a profitable business run out of cash?
Yes. Under accrual accounting, profit can include earned revenue not yet collected. Stock, equipment, loan principal and owner payments can also use cash differently from the expenses recognised in the period.
Is a positive bank balance proof that the business is profitable?
No. The balance may include borrowed funds, owner contributions or customer payments for work still to be delivered. Review profitability and future commitments alongside cash.
Should I forecast invoices or money received?
Forecast expected collections using realistic dates. Retain invoices as supporting records, but distinguish amounts owed from amounts already paid and avoid double-counting them.
Why use 13 weeks?
It gives a weekly view over roughly one quarter, which can reveal timing problems hidden inside monthly totals. Use a daily view for immediate pressure and a longer forecast for strategic decisions.
How much cash should I keep as a buffer?
Base the amount on essential commitments, volatility, payment delays and the reliability of funding. Test whether the business can meet its obligations under a realistic downside scenario rather than adopting an arbitrary universal number.
Is the forecast a formal cash-flow statement?
No. This is a management forecast of future receipts and payments. A formal statement of cash flows reports historical movements according to the applicable accounting framework. Both serve useful, different purposes.
Sources and scope
Sources checked on 4 November 2026
- Business Queensland: Budgets and forecasts — distinctions between profit budgets and cash forecasts, receipts and payments, and forecast review.
- Australian Government: Set up a cash flow statement — opening balances, incoming and outgoing cash, and closing balances.
- BDC: Plan your cash flow in the coming year — rolling 13-week planning and scenario analysis.
- IFRS Foundation: IAS 2 Inventories — recognition of inventory cost as an expense with related revenue.
- IFRS Foundation: IAS 16 Property, Plant and Equipment — asset recognition and depreciation principles.
The overseas sources support general planning and accounting concepts, not South African tax rules. Calculations and examples are original TSN illustrations. This guide is educational management information; obtain professional advice for your business's accounting, tax, financing or legal circumstances.
