Profit but No Cash: Prepare an Eight-Week Cash-Flow Forecast

“We are profitable. Why is cash still tight?”

A business can report a profit and still struggle to pay suppliers, payroll or taxes on time.

Profit measures whether income exceeds expenses for a period. Cash measures whether money is actually available when an obligation falls due. The two are connected, but they do not move in the same week, or even in the same month.

A sale made today may be profitable, but the customer may pay after 30 or 60 days. Meanwhile, material purchases, wages, rent, GST payments and loan instalments may need to be paid earlier.

That is why a bank balance alone is not a cash-flow plan. A short rolling forecast gives management time to act before a gap becomes urgent.

Start with an eight-week view

An eight-week cash forecast is a simple working schedule. It should be updated every week using actual bank balances, confirmed customer receipts, receipts that can reasonably be expected from a customer's payment history, and known payment commitments.

Keep four lines visible:

• Opening available cash
• Expected receipts from customers and other sources, such as a loan disbursement
• Planned payments
• Closing available cash

The focus is timing. A forecast should not assume that every invoice raised will be collected in the same week.

A fictional example

Assume a business starts the forecast period with ₹6,50,000 in available cash and wants to keep at least ₹1,50,000 on hand at all times.

Over the eight weeks, receipts total ₹26,70,000 and payments ₹27,30,000, and cash ends only ₹60,000 below where it started. The business is not running out of money. But the forecast shows a shortfall in Week 3 and a balance below the ₹1,50,000 minimum in Weeks 3 and 4. A month-end balance alone would not show the Week 3 shortfall.

That early warning creates options:

• Follow up on a customer receipt before it becomes overdue.
• Reschedule a non-essential purchase.
• Discuss a supplier payment plan before the due date, within the agreed credit period and any legal time limit, such as the 45-day rule for micro and small suppliers.
• Use a sanctioned working-capital facility deliberately rather than as an emergency.
• Delay a discretionary outflow after management review.

Without the forecast, the business discovers the problem only when a payment cannot be made.

Separate expected receipts from hopeful receipts

A useful forecast does not treat every outstanding invoice as cash.

Classify customer receipts into three groups:

This distinction is especially important for businesses that sell on credit. Revenue may appear in the monthly accounts, but cash depends on collection discipline.

List payments by their real due date

The payments side should include more than supplier bills.

Track:

• Salaries and contract labour
• Material purchases and freight
• Rent, utilities and recurring software costs
• GST, TDS, advance tax and other statutory payments
• Loan instalments, interest and bank charges
• Customer refunds, replacements or returns
• Planned capital expenditure
• Owner drawings or partner withdrawals, where applicable

A tax amount may be recorded in the books before it is payable. The forecast should show the actual expected payment date so that a provision in the books is not mistaken for cash leaving the bank that week.

Connect cash flow with costing and margin

Cash pressure is often treated only as a collection problem. Sometimes the underlying issue is product economics.

If a business is selling more but cash remains tight, review:

• Whether each product contributes enough after its variable costs, such as material, processing, packing, freight, commissions and payment charges.
• Whether customers are taking longer to pay than suppliers allow.
• Whether inventory is increasing faster than sales.
• Whether discounts are being given without checking the minimum acceptable price.
• Whether a growing product line requires more working capital before collections arrive.

A cash forecast tells management when money will be short. A cost sheet and contribution analysis help explain whether the business model can support the cash cycle.

A practical weekly routine

• Update the bank balance. Note separately any collections received but not yet deposited or cleared, so the same receipt is not counted twice.
• Replace estimates with actual receipts and payments from the previous week.
• Review the next eight weeks, not only the current month.
• Record the customer, invoice and expected collection date for large receipts.
• Separate committed payments from discretionary spending.
• Flag the lowest projected cash point and any week below the minimum balance.
• Assign collection follow-up to a named person.
• Discuss the weeks where cash may fall short, and why, before approving new purchases or discounts.
• Compare forecast cash with actual cash and note the reason for material variances.

The aim is earlier decisions, not a perfect forecast.

Before relying on this article: the example is original and uses fictional data; it is not a client case study. The figures show timing and decision-making only. Cash-flow forecasts, statutory payment dates and financing decisions must be checked against the business's current records, commitments and the law that applies.

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