Business Core · Finance · Module
Cash flow
Money actually moving in and out, by date. Profitable organisations fail here, which is why it is tracked separately from profit.
The idea
How it works
Profit is an accounting position; cash is a fact with a date on it. The gap between the two is the working capital cycle, and it is where growing organisations most often run into trouble — growth consumes cash before it produces it.
A thirteen-week rolling cash forecast is the standard instrument because it is long enough to see a problem and short enough to be accurate. It is a modest amount of work and it is the difference between managing a shortfall and discovering one.
Working with it
In practice
- 01
Forecast weekly, thirteen weeks out
Monthly totals hide the week the balance goes negative.
- 02
Track the conversion cycle
How long from paying for inputs to being paid for outputs. Shortening it releases cash without earning any.
- 03
Manage receivables actively
Invoices are paid on the timetable of whoever chases them. Terms are the starting position, not the outcome.
- 04
Know the runway
How long the organisation survives at current burn. It should be a number someone knows without calculating.
One level in
The components of cash flow
A component is something that exists afterwards which did not exist before — a deliverable or a mechanism, not an intention.
Growth consumes cash before it produces it. That is why profitable organisations fail here.
The other modules in finance
Budgeting
Allocating money to intentions for a period ahead. A budget is a set of decisions expressed in numbers, not an administrative exercise.
LearnForecasting
A current estimate of where the numbers are heading, updated as the world changes. Distinct from the budget, which is a commitment.
LearnFinancial reporting
Turning transactions into a statement of what happened, for people who have to decide something on the basis of it.
Learn