Cash is not the same as profit
You can be profitable on paper and still run out of cash if money arrives late or leaves early. Forecasting cashflow means projecting your balance forward, month by month, to spot shortfalls before they hit.
How to project
Start with today's balance. Each month add expected income, subtract expected costs. If any month dips below zero, you have a gap to plan for — save now, delay a purchase, or arrange short credit.
Example
Balance 500, income 1200, costs 1100 means +100 a month. But if a big 400 stock bill lands in month 3, your balance could dip — the forecast shows it early so you prepare.
A school-uniform seamstress mapped her year and saw the truth: two rich months around term openings, then long dry stretches. Her forecast showed a negative balance every June. She began banking half of each January's surplus, and June stopped being an emergency — it became a planned expense.
A profitable hardware kiosk nearly closed because customers paid in 60 days while suppliers wanted 14. The owner only understood after writing a simple month-by-month cash line: profit on paper, empty drawer in practice. He offered a 2% discount for cash payment, shortened the gap, and the 'profitable but broke' months ended.
Practice
How can a profitable business still run out of cash?
If income arrives later than bills are due — timing, not profit, causes the gap.
A forecast shows month 4 goes negative. What can you do?
Save ahead, delay a purchase, or arrange short-term credit before month 4.
Open the Cashflow Forecast and project 12 months. Add a large one-off cost in month 3. Which month first turns negative?
The forecast shows the dip caused by that cost — often the month it lands or just after. Now you can save ahead or delay it.
Write down your cash balance today, then your expected income and costs for the next three months.
Adding income and subtracting costs month by month shows if any month dips below zero — plan for it before it arrives.
