What your cash-flow position is really telling you

Profit and cash are not the same thing

A business can make a profit on paper and still experience a cash shortage. You may have issued invoices that count as sales but have not yet been paid, while wages, rent, suppliers and tax still need to be settled on time.

The opposite can also happen. A strong bank balance may include VAT collected for HMRC, a customer deposit for work not yet delivered or money needed for a large supplier payment next week. That cash is visible, but it is not necessarily available to spend.

The questions a cash-flow view should answer

A rolling 13-week forecast is often detailed enough to expose pressure points while remaining practical to maintain. It should use realistic payment dates rather than simply copying invoice due dates.

• How much cash is genuinely available after near-term commitments?
• Which customers owe money, and when is payment realistically expected?
• What regular and one-off payments are due over the next 13 weeks?
• When will VAT, PAYE, Corporation Tax or Self Assessment payments fall due?
• What happens if sales arrive later than expected or costs rise?

Signals worth investigating

Repeated use of an overdraft near payroll, overdue customer balances and last-minute transfers to cover tax are all signs that timing needs attention. So is rapid sales growth that creates a bigger gap between paying suppliers and collecting from customers.

None of these signals automatically means the business is unhealthy. They do mean you need a clearer view of working capital and the decisions available to you.

Practical actions

• Invoice promptly and make payment terms unmistakably clear.
• Review aged receivables every week and follow up consistently.
• Separate money reserved for tax from day-to-day operating cash.
• Agree supplier terms before cash becomes tight, not after.
• Compare forecast cash with actual results and update assumptions.