How to build your company's cash flow
When cash never balances, the cause is almost always one of three: incomplete entries, mixing cash and accrual basis, or sales that have not turned into money yet. This guide fixes all three.
A cash flow is built from the opening balance, expected inflows by receipt date, expected outflows by payment date and the projected closing balance. Use a 13-week horizon, update weekly and set a minimum cash buffer of one to three months of fixed expenses.
The minimum structure
A management cash flow needs only five blocks:
- Opening balance
- Operating inflows by actual receipt date
- Operating outflows by actual payment date
- Non-operating movements (loans, capital, investments)
- Projected closing balance versus the minimum cash buffer
The 13-week projection
Thirteen weeks is the standard liquidity horizon: long enough to act, short enough to stay accurate. Refresh it every Monday, comparing forecast with last week's actuals.
Why cash never balances
Recurring gaps between forecast and actuals point to overdue receivables, unbudgeted card fees, mis-recorded installments or payments made outside the system. Daily reconciliation exposes which one.
Set a minimum cash buffer
Compute monthly fixed expenses and keep one to three months in reserve depending on revenue volatility. Without that buffer, any late customer becomes an emergency.
A few minutes, no cost.
Frequently asked questions
My cash never balances — what should I do?
Reconcile the bank statement daily for 30 days. The recurring gap always reveals its source: receivables, fees, installments or off-book payments.
What is the difference between cash flow and income statement?
Cash flow records money by actual date; the income statement records results on an accrual basis.
What projection horizon should I use?
Thirteen weeks for liquidity management and twelve months for annual planning.