Summarise with AI
Cash flow is not profit
Profit is accruals-based: revenue counts when earned, expenses when incurred. Cash flow counts money actually moving. A profitable business runs out of cash when the timing does not line up, and that is common rather than exotic:
- Customers on 30-day terms while wages are paid weekly
- A quarterly BAS payment landing in a single month
- Stock bought before it is sold
- Growth — funding wages and inventory ahead of the revenue they generate
The three types
- Operating — day-to-day trading: receipts from customers, wages, rent, suppliers. The one that matters most
- Investing — buying or selling assets: equipment, vehicles, fit-out
- Financing — loans drawn or repaid, owner contributions and drawings
A business with negative operating cash flow propped up by financing is consuming borrowed money to trade. That is survivable briefly and fatal as a pattern.
The outflows people forget
Forecasts usually fail on the payments that are predictable but not monthly:
- GST payable on the quarterly BAS
- PAYG withholding and instalments
- Superannuation guarantee
- Annual leave taken in a quiet trading month — paid whether or not revenue is there
- Insurance and registration renewals
Every one is foreseeable. An average-month forecast hides all of them, which is why a monthly forecast beats an annual budget divided by twelve.
Key takeaways
- Cash flow measures money moving; profit measures value earned
- Operating, investing and financing are the three types — operating matters most
- Negative operating cash flow funded by borrowing is a pattern to act on
- BAS, super, PAYG and leave are the predictable outflows an average-month forecast hides
Wages are the largest and most variable outflow in a shift-based business — forecast them from the roster, not from an average week.
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