A profitable month doesn't pay salaries. Cash does. Founders who came up through sales or operations often have a strong instinct for revenue and a blind spot for working capital. The result is the classic crunch: a great quarter on paper, a payroll panic in real life.
Why profit and cash diverge
Profit is an accounting view. Cash is a banking view. Three things drive the gap:
- Debtors (DSO): you've billed but not collected.
- Creditors (DPO): you've spent but not paid.
- Inventory (DIO): you've bought but not sold.
If DSO and DIO grow faster than DPO, every rand of growth eats cash. Fast-growing businesses go bust this way all the time.
13 weeks
the right horizon for an operational cash forecast — long enough to act, short enough to be accurate
The three numbers, monthly
- Days Sales Outstanding (DSO) — trend, not absolute.
- Days Payables Outstanding (DPO) — trend, not absolute.
- Days Inventory Outstanding (DIO) — by category.
Building a 13-week cash forecast
- List the next 13 weeks across the top.
- Down the side: opening cash, customer collections (by major debtor), supplier payments (by major creditor), payroll, statutory, other.
- Forecast each line. Be honest about timing — invoices land when they land, not when they're 'due'.
- Update weekly. Compare actual vs. forecast. Adjust your assumptions, not your hopes.
When liquidity tightens
Have a documented plan before you need it. Which suppliers can you extend? Which customers can you ask for early settlement (with a discount)? Which non-essential spend gets frozen? Decisions made under pressure are worse than decisions made in advance.
Cash is the only score that ends the game. Run the business profitably; manage it on cash.
