What does "profit is not cash" mean?

You can show a profit on paper and still be short in the bank, because customers often pay after your bills are due.

A profitable business never runs short of cash.

Profit only counts after taxes are paid.

Profit and cash are the same if you send invoices on time.

In late October, Ray finishes a $4,500 job. The customer pays in 45 days. Where does the $4,500 go in his forecast?

In the week he expects to collect it, around mid-December.

Week 1, when he sends the invoice.

Nowhere until the check arrives.

Spread evenly across all 13 weeks.

Why leave the tax account out of starting cash?

That money is set aside for taxes, and withheld payroll taxes are held in trust for the government.

Tax money can be spent now and paid back before the due date.

Lenders don't look at tax accounts.

The tax account only matters in April.

Dana's forecast shows her cash falling below her minimum in week 9. What's the best move?

Act now: collect faster, cut owner draw, delay purchases and talk to vendors.

Take a merchant cash advance now so the account never dips.

Wait until week 9 to see if it really happens.

Use the tax account to cover the gap.

Why keep loans and owner money on their own lines?

So you can see whether customer payments cover the business's costs on their own.

So loan money can be counted as sales.

Because owner money can't be used for business bills.

So they can be left off the forecast.

Ray's minimum cash level is $10,000. His forecast shows $8,400 in week 11. What does that mean?

It's a warning to make changes now, while there's still time.

Nothing, as long as cash stays above zero.

He should borrow now to stay above the minimum.

Lesson B102.1 · Business Finance 102: Bank-Ready

Seasonal cash flow: the 13-week forecast

5-minute read · No dated figures

A blue dump truck with a red plow blade and a salt spreader clears a snowy highway — Photo: Famartin / Wikimedia Commons, CC BY-SA 4.0

The short answer

Profit is not cash. A job can show a profit in October and pay you in December, while the crew and the material were paid in October. A 13-week cash forecast lists the money you expect in and out, week by week, so you see a short week two or three months ahead and still have time to fix it. Update it every Monday, and set a minimum cash level you won't go below.

Profit is not cash

Profit is what a job earned on paper. Cash is what's in the bank on Friday. In this trade the two can be months apart.

Example: Ray runs a two-truck crack-repair and striping shop. In late October he finishes a $4,500 job for a property manager. The job earns its profit in October. He paid the crew and the material that month, and the property manager pays in 45 days, so the cash lands in mid-December.

Across a season, it adds up. The crew stops in November, but the truck payment, insurance, phones and owner pay keep going. Collections slow down just as winter bills come due. A year with a good profit can still run short of cash by February.

Build the forecast

Use a spreadsheet or the 13-week cash forecast tool: one row per week, 13 weeks out.

Starting cash. Everything in your business accounts except the tax account. That money is set aside for taxes, and payroll taxes withheld from your crew are held in trust for the government.
Money in. Each customer payment in the week you expect to collect it, not the week you send the invoice. A customer who pays in 45 days goes in at 45 days.
Money out. Payroll, materials, truck and equipment payments, insurance, rent, phones and owner pay, each in the week it's due.
Loans and owner money on their own lines. If the forecast only works because you put money in, you need to see that.
A minimum cash level. Start with about one month of slow-season bills and owner pay, plus a cushion. Any week below it is a warning.

Every Monday, swap last week's guesses for what really happened and add a new week 13.

Example (made-up numbers). Ray starts his forecast the first week of November. Owner pay is $1,000 a week, monthly bills are $2,800 and the truck payment is $900. His minimum is $10,000: about one month of winter bills and owner pay, plus a cushion.

Week	Money in	Money out	Cash at week's end	What's happening
Start			$26,000	Tax account not counted
1	$12,000	$9,000	$29,000	October invoices paid; payroll; monthly bills
2	$8,000	$13,600	$23,400	Supplier bill; truck payment
3	$6,000	$6,200	$23,200	Last payroll of the season
4	$3,000	$1,000	$25,200	Owner pay only from here
5	$0	$3,800	$21,400	Monthly bills
6	$4,500	$1,900	$24,000	The 45-day customer pays; truck payment
7	$0	$1,000	$23,000
8	$0	$1,000	$22,000
9	$0	$6,200	$15,800	Monthly bills; registrations and property tax
10	$0	$1,900	$13,900	Truck payment
11	$0	$5,500	$8,400	Insurance renewal down payment
12	$0	$1,000	$7,400
13	$0	$3,800	$3,600	Monthly bills

Swipe the table sideways to see every column.

Week 11 drops under his minimum, with February and March still ahead.

When the forecast dips

Ray sees the problem in early November, ten weeks ahead, so he has time for four moves:

Collect faster. In week 4 he calls the property manager to confirm the payment date and offers ACH. From now on he invoices the day a job is done.
Cut owner draw. He drops it from $1,000 to $600 a week starting in week 4. Over 10 weeks that keeps $4,000 in the business. His household Winter Fund covers the difference at home.
Talk to vendors early. His insurance agent offers a monthly payment plan, which moves about $3,000 of the renewal past week 13.
Delay purchases. The trailer he wanted waits until spring jobs pay.

With those changes, week 13 ends at $10,600, just above his minimum. His Twelve-Month Paycheck, the same idea by month, shows December through March costs about $8,000 a month ($2,800 in bills, $900 for the truck and about $4,300 of owner pay) with almost nothing coming in. That sets next season's winter reserve target, saved from every deposit.

Never cover a short week with a merchant cash advance. Its daily or weekly debits pull cash out in exactly the weeks you're short, and B102.7 shows what it really costs.

Your Move

Do this week

Open a spreadsheet or the 13-week cash forecast tool and enter today's business cash, leaving out the tax account.
List every customer payment you expect in the next 13 weeks, in the week you expect to collect it.
List payroll, every bill and loan payment, and your owner pay, in the week each is due.
Set your minimum cash level and mark every week that falls below it.
Put a 15-minute forecast update on your calendar for every Monday.

Log it: 13-week forecast built.

Common questions

How is a cash flow forecast different from a budget?

A budget sets what you plan to earn and spend. A cash forecast shows when the money actually moves, week by week, so you can see a short week coming.

What should my minimum cash level be?

Start with one month of slow-season bills and owner pay, plus a cushion, and raise it as the business grows.

Why 13 weeks?

It's one quarter: far enough out to see winter coming, close enough that your guesses are still good. The Twelve-Month Paycheck covers the whole year.

Watch out for

Counting an invoice as cash the day you send it.
Owner draws that stay the same in January as in July.
Money in the tax account that quietly becomes operating cash.
Fast-cash offers that show up just when the forecast dips. A merchant cash advance or any daily-debit deal is a no (B102.7).

Free help

Small Business Development Centers: free business consulting; bring your forecast (find your SBDC).
SCORE: free mentoring from experienced business owners (score.org).

Free practice

Lesson check

5 questions on this lesson, one at a time, with the answer and the reason after each. Pass with 4 right, including every must-know question.

This is general education, not tax, legal, investment or insurance advice. Rules change and every situation is different. Check the sources below, and talk to a qualified professional before you act on it.

Sources

IRS: Employment taxes and the Trust Fund Recovery Penalty
SBA Office of Advocacy: Interest Rates and Non-Bank Lending to Small Businesses
America's SBDC: Find your SBDC
SCORE: Free business mentoring

All lessons in Business Finance 102: Bank-Ready →