Why a profitable business can still run out of cash

Your P&L can show a healthy profit while your bank balance keeps falling. Both can be true at the same time, because profit is counted when you make a sale and cash arrives when the customer pays.

Where the cash goes

A few things usually sit between your profit and your bank balance.

• Customers who pay late. Invoices on 60-day terms mean you fund two months of their business.
• Stock on the shelf. Every dirham in stock is cash you can't use until it sells.
• VAT. The 5% VAT you collect on sales isn't yours to keep. Most businesses file and pay it every quarter, so a strong month can mean a large payment later.
• Loan repayments and money the owner takes out. Both leave the bank, but neither shows up as a cost in the P&L.

A simple 13-week cash forecast

List the cash you expect to come in each week for the next 13 weeks, then the cash going out. The weeks where the balance dips are the ones to plan for. Update it every Monday. Once it's set up, that takes about 15 minutes.

Fixes that work quickly

• Send each invoice the day the work is done, and follow up after seven days.
• Ask your best customers for shorter payment terms, or offer a small discount for paying early.
• Move the VAT you collect into a separate account every week, so the quarterly payment is never a surprise.
• Order stock in smaller batches, even if the unit price is a little higher.

Altaligence builds a 90-day cash forecast from your connected accounts and warns you before a dip.