Managing cash flow

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Last updated on December 1, 2014

Cash – the money flowing through your business, from cash register to bank account to supplier – keeps your business alive. Without cash flow, your business would grind to a halt.

Cash flow forecast

The management tool to monitor your business cash flow is called a cash-flow forecast.  It shows the expected flow of cash in and out of your business and predicts your bank balance at the end of each month.  This helps you to plan for those months when additional funds are needed, or consider how to make the best use of short-term surplus funds.

Profit is not cash

When using budgets in business, it's important to understand the distinction between profit and cash.  It's often said that more businesses fail through a lack of cash, than a lack of profit.

A business may generate substantial cash receipts but record a modest level of profit or even a loss.

Alternatively, a business in a strong growth phase may generate increasing profits but be cash-poor, due to a higher commitment of funds to debtors and stock.

Profit projection

A profit projection allows you to address the viability of your business. It shows how much you can expect to earn over the next 12 months.  But in projecting a bottom line, it:

  • includes non-cash expenses such as depreciation
  • does not take into account timing differences (such as payments to creditors and receipts from debtors)
  • excludes payments of a capital nature such as loan repayments and the purchase of equipment.

For these reasons, your profit projection doesn't provide you with an estimate of your cash position.


Your business needs to be both profitable and liquid.  Liquidity refers to the ability of your business to meet its commitments as and when they fall due.  This means having cash available when required.

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