Profitable. But short of cash?

A simple example.

Assume your business earns R100,000 of revenue in a month and incurs R70,000 of expenses. Its profit is R30,000. If customers have paid only R40,000 by month-end and all R70,000 of expenses have been paid, those transactions have reduced cash by R30,000.

The remaining R60,000 is owed by customers. The example ignores tax and other transactions to show the effect of payment timing. Collecting those invoices later increases cash without earning the same revenue again.

Other reasons cash and profit differ.

• Buying stock can use cash before that stock is sold and recognised as a cost.
• Buying equipment uses cash; the cost may be recognised over time through depreciation.
• Loan proceeds increase cash but are not sales revenue.
• Repaying loan principal reduces cash but is not an operating expense.
• Owner funding, distributions and payment timing can change the bank balance independently of operating profit.

Build a short-term cash forecast.

Start with available cash. List expected receipts by the date you realistically expect payment, then scheduled payments by their due date. Include loan repayments and planned equipment purchases. A weekly forecast over the next 13 weeks can make a near-term shortfall visible earlier.

Test the assumptions.

Model what happens if a large customer pays late, sales fall or a major cost increases. Update the forecast with actual receipts and payments. The aim is to see when decisions are needed, rather than rely on a single month-end bank balance.

Turn the forecast into a decision.