Profitable businesses still run out of cash. It happens when money comes in slower than it goes out, often just as the business is growing. A simple cash-flow budget helps you see shortfalls weeks ahead, while you still have time to act.
Profit is not cash
Your profit and loss account shows income when it’s earned. Your bank balance shows when customers actually pay. If customers take 60 days to pay but suppliers and staff need paying now, a growing order book can drain your cash.
Build a rolling 13-week forecast
A 13-week (roughly three-month) forecast, updated every week, is a practical starting point. For each week, list:
- Opening cash: your actual bank and cash balance.
- Cash in: customer receipts based on when they realistically pay, plus any loans or owner contributions.
- Cash out: salaries, rent, suppliers, loan repayments, capital purchases and taxes.
- Closing cash: opening cash plus cash in, minus cash out. This becomes next week’s opening balance.
Don’t forget the tax calendar
Tax payments are among the largest and most predictable outflows, yet they’re often left out. Include monthly VAT, PAYE and SDL payments, withholding tax and your provisional income tax instalments. Missing them doesn’t just hurt cash flow; it adds penalties and interest.
Compare forecast with actual
Each week, compare what you expected with what happened. Big differences tell you something: a customer paying late, costs creeping up, or sales slowing. Adjust the rest of the forecast accordingly.
Ways to improve cash flow
- Invoice promptly and follow up overdue accounts every week.
- Agree clear payment terms and consider deposits for large orders.
- Negotiate supplier terms that match how your customers pay.
- Keep stock levels in line with real demand.
- Time large purchases for when cash is strongest.
- Keep a cash buffer, ideally enough for at least one month of fixed costs.
- Arrange financing before you need it. Banks lend more readily to businesses with a forecast.
The bottom line
A cash-flow budget doesn’t need special software; a spreadsheet updated weekly is enough. What matters is the habit. Businesses that know their cash position three months ahead make calmer, better decisions.
This article is general information, not tax or legal advice. Rules change and every business is different, so speak to an STAA advisor about your situation.