A small business can have plenty of orders and still struggle to pay a supplier. The missing detail is often timing. Profit describes the difference between revenue and expenses for a period; cash flow records money arriving and leaving. The Australian government's financial terms guide distinguishes these concepts. Understanding both helps you ask better questions about everyday trading.
A simple illustration
Imagine a fictional printing workshop completes an order worth £2,000. The materials and other costs attributed to that order are £1,300. Ignoring other expenses and taxes for this illustration, the order contributes £700 toward profit. That does not mean £700 is already available to spend. If the customer has not paid, the workshop may have received nothing while already paying for materials.
Suppose the workshop begins the week with £900 in its bank account, pays £600 for paper on Monday and £500 for another bill on Wednesday. The order's £2,000 payment is expected on Friday. The week's final balance could look healthy, but the Wednesday balance would be negative unless another arrangement is made. A weekly total conceals a problem that a dated cash forecast reveals.
Build a dated view
Start with cleared cash that is actually available. List expected receipts by realistic payment date, then list outgoing payments by their due dates. For each row, calculate the new balance: previous balance plus receipts minus payments. A spreadsheet is convenient, but a notebook can work. Keep business money separate from household estimates so a personal balance does not accidentally appear available twice.
Mark uncertain receipts clearly. An invoice issued today is not the same as money received today, and a customer's promise is not a cleared payment. Create one view using expected dates and another that moves uncertain receipts later. The second view is a planning exercise, not a prediction. It helps reveal which commitments depend on optimistic assumptions.
Ask what caused the difference
- Are customers paying after suppliers need to be paid?
- Has money gone into stock that has not yet sold?
- Was equipment purchased before the associated work started?
- Are regular overheads missing from the order calculation?
- Have refunds, deposits or payment fees been overlooked?
These questions lead to different responses. A late invoice needs a payment follow-up. Excess stock needs a purchasing review. A missing overhead needs a better cost estimate. Treating all three as a sales problem can make matters worse: accepting more work may require more cash before it produces receipts.
Keep the forecast useful
Update actual receipts and payments instead of leaving the original guesses in place. Add a note when a large difference occurs, such as a delayed customer approval or unexpected materials purchase. Those notes make the next forecast more realistic. For the fictional workshop, an earlier paper payment and a later customer payment would become visible before the next similar order is accepted.
Choose a review rhythm that matches the business. A daily check may be needed during a tight period, while a weekly forecast can suit more predictable operations. Look at the lowest projected balance as well as the final balance. The lowest point tells you when the pressure appears and how much depends on a particular receipt.
This example explains the concepts rather than accounting treatment for a particular business. Loans, equipment, taxes and deposits can be treated differently in formal accounts. An accountant or qualified adviser can help reconcile profit reports with cash movements. The practical first step is smaller: put dates beside the money and identify the next point where the balance becomes uncomfortable.
Sources and further reading
This original guide was prepared with AI assistance. Examples are illustrative. The edition date is an assigned date in this 2026 catalogue. See our editorial policy and report a correction.
General financial education only. This article does not recommend a financial product or give advice tailored to your circumstances.