Profit, cash and runway answer different questions
Revenue can be recognised before a customer pays, and some payments do not appear as an immediate expense in the same way. A profitable month can therefore coincide with a falling bank balance. Runway is a planning estimate, not a promise.
Build the forecast from timing, not hope
Start with reconciled opening cash. Add customer receipts in the periods they are realistically likely to clear, then list payroll, suppliers, tax, debt, capital purchases and other outgoings when they must be paid.
Model base, downside and upside cases
Change a small number of material assumptions such as sales timing, collection delays, hiring, pricing, churn or major costs. A downside case should show what management will do, not merely a red number.
Understand working capital
Growth can consume cash when costs are paid before customers settle. Track overdue invoices, supplier terms, inventory where relevant and committed but unpaid spending. Improve the cycle through prompt invoicing, deposits, disciplined collection and carefully negotiated terms.
Watch leading indicators
Repeated forecast misses, an ageing debtor book, tax money used for operations, unexplained balances and shrinking runway deserve attention. Treat a forecast low point as a decision date well before the balance reaches zero.
Create a review rhythm
Review near-term cash weekly and the full rolling forecast monthly. Compare forecast with actual results, explain the largest differences and assign actions with owners and dates.
Turn the forecast into decisions
Use scenarios to sequence hiring, reduce non-essential commitments, accelerate collections or begin funding conversations early. Seek insolvency advice promptly if the company may be unable to pay debts when due.
Founder checklist
- Reconcile opening cash
- Forecast receipt and payment timing
- Include payroll, tax and committed costs
- Build base, downside and upside cases
- Review weekly and reconcile monthly
- Attach owners and dates to cash actions
Frequently asked questions
Can a profitable business run out of cash?
Yes. Profit and cash move on different timing, especially when customers pay after costs fall due.
How is runway calculated?
A simple estimate divides usable cash by a defined net cash burn, but variable revenue, one-off payments and restricted cash can make this misleading. Use a dated forecast as the primary view.
How far ahead should I forecast?
At least across the cash-flow cycle and far enough to reveal decisions before cash becomes critical. The useful horizon varies by business.
Should tax reserves count as available cash?
They may sit in the bank but can be committed to future liabilities. Label reserved cash separately and confirm amounts with an adviser.
