Separate profit from available cash
An unpaid invoice is not money in your bank account. Loan principal payments, owner withdrawals, and equipment purchases also affect cash differently from the expenses shown on a profit-and-loss statement.
Build a weekly forecast
Start with available cash. Add expected customer receipts by collection date, then subtract payroll, rent, suppliers, debt payments, and planned tax payments. Track the ending balance each week over the next few months.
Use the forecast to act early
Compare actual collections with your forecast. Follow up on overdue accounts, review inventory commitments, and discuss payment timing before a shortfall occurs. Keep a separate reserve for obligations already incurred.
A practical example
You start with $12,000, expect $8,000 in collections, and have $23,000 of payments due. That leaves a $3,000 gap, even if your sales report looks strong. Delayed collections would make the gap larger.
What to gather
- Current bank balances
- Unpaid invoices and their expected collection dates
- Upcoming bills, payroll, and loan schedules
- Expected tax payments and major purchases
Official references
General educational information, not individualized tax, legal, or investment advice. Federal rules are summarized; state rules and your circumstances may differ. Check the rules for your tax year before acting.