Cash is the story, not profit

A business can be profitable on paper and run out of money. Customers pay late, you buy stock before you sell it, the tax payment arrives in a lump. That is why a bank looks at the liquidity forecast before it reads your story.

The number that matters#

In a monthly forecast, the lowest month-end cash balance is the point at which you are most exposed. If it is below zero, you will not be able to pay something, and the plan needs funding before that month. If it is above zero but thin, any delay turns it negative.

How Business Plan works out the need#

The funding need is the lowest month-end cash plus a buffer of months of running costs, in whole cents, and the month it is needed. If you are already funded it is zero. You can change the buffer. The result is not a guess about the future: it is arithmetic on your inputs, which is why it moves when you move an input.

What moves it most#

Price and volume move revenue, but timing moves cash. The scenarios include a worst case where customers pay fifteen days later, and the sensitivity view moves one input at a time and ranks them by swing. Often the result is surprising: payment terms matter more than the marketing budget.

What a lender sees#

Lender packs check that cash never goes below zero and warn when it is below the buffer. They also look at whether the owner's pay covers living costs and, for loans, whether the debt service is covered. A plan that shows the dip and the funding that covers it reads as honest.

What to do about a dip#

Move the start of a cost, ask for a deposit, change payment terms, raise a little more at the start. Each of those is a change to an input, and the forecast shows what it does. That is the whole loop: change, look at the cash line, change again.

The caveat#

Defaults are not facts. Tax and payroll defaults for a country stay to verify until you or your advisor confirm them, and the thresholds in a lender pack are stand-ins to check with the lender.

See readiness and funding.