®
Profit and cash are not the same thing. A business can be profitable on paper and still run out of money to pay a supplier, HMRC or payroll on the day it falls due. Cashflow management is the discipline of keeping the timing of money in ahead of the timing of money out.
1. Build a rolling cashflow forecast
A cashflow forecast is simply a week-by-week (or month-by-month) list of expected money in and money out, rolled forward 8–13 weeks. It does not need to be complicated — a spreadsheet with confirmed invoices, expected payment dates, and known bills is enough. The value is in updating it weekly, not in how sophisticated it looks on day one.
2. Know your debtor days
Debtor days measure how long, on average, customers take to pay you after you invoice. If your terms say 30 days but your actual average is 45, that gap is real cash sitting outside your bank account. Track it monthly. If it is drifting upward, tighten credit control before it becomes a crisis — a polite, consistent chasing process recovers more cash than most businesses expect.
3. Separate a cash buffer from working capital
Where possible, hold a small reserve — even one month of core fixed costs — that is not counted as available working capital. It exists purely to absorb a shock: a late payment, an unexpected repair, a slow month. Businesses that treat every pound in the account as spendable are the ones most often caught out by timing.
4. Time big outgoings around known income, not hope
Stock orders, tax bills, equipment purchases and hiring decisions should be scheduled against your forecast, not against optimism. If a large payment is due before a large receipt is confirmed, that is the moment to either delay the spend, negotiate the timing with the supplier or HMRC, or bridge it deliberately with short-term finance sized to the gap.
5. Know when short-term finance is the right tool
Short-term borrowing is expensive relative to bank lending and should be used sparingly — but it is the right tool for a specific, dated, bridgeable gap: a VAT bill, a late-paying customer, seasonal stock. It is the wrong tool for an ongoing shortfall that borrowing alone cannot fix; if costs consistently outrun income, the underlying issue needs addressing first, not refinancing.
Frequently asked questions
- What is the difference between cashflow and profit?
- Profit is revenue minus costs over a period, on paper. Cashflow is the actual movement of money in and out of your bank account, day by day. A business can show a profit for the year and still run out of cash in a specific week if a big bill falls due before a big invoice is paid.
- How far ahead should a small business forecast its cashflow?
- 8 to 13 weeks is a practical working window for most small businesses — far enough ahead to see a gap coming, close enough that the numbers are still reasonably reliable. Many businesses also keep a lighter 12-month view for bigger, seasonal or annual costs.
- When does a cashflow gap justify a short-term business loan?
- When the gap is specific, dated and bridgeable — you know the amount, you know roughly when the offsetting income lands, and the cost of borrowing is clearly less than the cost of missing the payment (a penalty, a lost discount, a damaged supplier relationship). If the gap is a recurring, structural shortfall rather than a timing issue, borrowing is not the fix.