Understand cash flow
A profitable business can still run out of cash. Leaders need to know when money arrives, when it leaves and how much room exists for surprises.
Build a 13-week view
Start with cash in the bank. For each week, list expected customer receipts, payroll, tax, rent, supplier payments, debt service and capital spending. End each week with the projected cash balance. Treat uncertain receipts separately from contracted receipts.
Stress-test the plan
What happens if your largest customer pays four weeks late? What if sales fall 15% while payroll stays fixed? Calculate the lowest projected balance and decide in advance what action you would take.
Metrics worth watching
| Measure | Why it matters |
|---|---|
| Gross margin | Shows how much each sale contributes before overhead. |
| Debtor days | Shows how long cash is tied up after a sale. |
| Inventory days | Shows cash held in stock. |
| Cash runway | Shows how long current cash covers net outflows. |
Make the forecast decision-ready
List receipts by customer and realistic payment date, not only invoice date. Separate payroll, superannuation, tax, supplier payments, debt service and discretionary purchases. Include an opening and closing cash balance each week. Update the forecast when a major customer pays late or stock needs change.
Protect the downside
Calculate the minimum balance under a base case and a slower-collections case. Set a trigger for action before cash runs out: pause hiring, reduce discretionary spending, change payment terms or discuss finance with an adviser. Borrowing to cover an unprofitable delivery model can increase the eventual loss.
Know what profit is hiding
A sale can be profitable on an accrual basis but consume cash while stock is purchased and the customer has not paid. An increase in bank cash after receiving GST or a customer deposit is not necessarily money available to distribute. Compare the forecast with a profit and loss statement to understand both views.
business.gov.au: managing cash flow.
Next steps
Use the resources below to turn this topic into a plan suited to your situation.