Field note
Small Business Cash Flow Basics
A straightforward guide to timing, runway, working capital, and decisions that protect cash.
The useful distinction
Profit and cash are related but not identical. A business can show profit while cash is tied up in stock or unpaid invoices, or show a loss while a customer deposit temporarily boosts cash.
A simple working method
Forecast opening cash, receipts, payments, and closing cash weekly or monthly. Add a buffer for slow collections and uneven demand. A simple forecast is valuable when it is updated consistently.
Worked example
A company opens the month with 15,000, collects 22,000 and pays 30,000. Closing cash is 7,000 even if some of the payments relate to stock that will be sold later. Timing, not only profit, explains the movement.
Common mistakes
- Counting invoices as cash before collection
- Ignoring annual or tax payments in monthly forecasts
- Treating a customer deposit as earned profit
When this number can mislead
A forecast is a model of timing. Late customers, seasonality, one-time purchases and financing can change runway quickly. Update actual receipts and payments rather than carrying an old forecast forward unchanged.
Frequently asked questions
How often should a small business forecast cash?
Use a cadence that matches risk: weekly for tight cash positions and at least monthly for a stable operation.
Why is cash lower than profit?
Sales may not have been collected, inventory may have been purchased early, or debt and capital payments may reduce cash on a different schedule.
What forecast horizon is useful?
Use a horizon long enough to include known bills and seasonal swings. Weekly views help when cash is tight; monthly views suit stable planning.
Decision checklist
- Record actual receipt dates, not only invoice dates.
- Add irregular bills and planned purchases.
- Update the forecast with actual closing cash.
Definition and formula context: QuickBooks financial terms.
Write down the period, costs included, and whether figures are before or after discounts. Clarity makes a calculation reusable.
Use the profit margin calculator → · Review methodology and sources