Why profitable businesses run short of cash, and the habits that prevent it.
Profit is not cash
A business can be profitable and still run short of cash. Profit is measured when income is earned; cash moves when customers pay and suppliers are paid. The gap between those two is where pressure builds.
Watch the timing, not just the total
Payment terms, work in progress, stock and tax obligations all shift cash into different weeks than the profit that created them. A simple rolling forecast of the next twelve weeks is usually more useful than a detailed annual budget.
Build a few habits
Invoice promptly, follow up receivables on a schedule, set aside GST and PAYG amounts as they accrue, and review the forecast on a regular cycle. Most cash problems are timing problems that were visible in advance.
This article is general information only and does not take your circumstances into account. Confirm current requirements before acting on it.