Why cash matters more than profit, and how to forecast it 13 weeks ahead.

Profit is what your P&L says you earned. Cash is what is in the bank. Over a long enough period they meet, but in any given month they can be far apart, and a business stops when it cannot pay wages or HMRC, not when it makes a loss. That is why experienced tech founders watch cash flow weekly and profit monthly.

Why cash and profit drift apart

• Payment terms. You recognise revenue when you deliver, but a customer on 30 or 60-day terms pays later, and large companies often pay later still.
• Annual prepayments. An annual SaaS contract paid up front brings in twelve months of cash on day one while the revenue is recognised month by month. This helps cash, but it is not twelve months of profit.
• VAT. VAT you charge customers sits in your account but belongs to HMRC. Spending it is borrowing from the taxman.
• Timing of costs. Payroll, PAYE, pension contributions, annual software renewals, insurance and VAT quarters all land on different days.
• Items that never touch the P&L. Loan repayments, equipment purchases and money raised from investors move cash without moving profit.
• Delayed receipts. Tax credits and grants often arrive months after the costs they relate to.

Build a 13-week cash flow forecast

Thirteen weeks is one quarter: long enough to see a problem coming, short enough to be accurate. A spreadsheet is fine.

1. Start from the real bank balance today, across every account, including savings and card balances.
2. Set up 13 weekly columns. Rows for receipts, payments, net movement and closing balance.
3. List receipts customer by customer. Put each expected payment in the week you realistically expect the cash, based on how that customer actually pays, not on your invoice terms. Keep new sales that are not yet signed in a separate, clearly labelled row, or leave them out.
4. List every payment. Salaries, PAYE and National Insurance, pension contributions, contractors, rent, software, VAT, Corporation Tax, loan repayments and your own drawings. Check your bank statements for the last three months so nothing is forgotten.
5. Draw a minimum cash line. Decide the lowest balance you are willing to hold, for example one month of payroll plus tax liabilities, and highlight any week that falls below it.
6. Update it every week. Replace last week’s forecast with actuals, add a new week thirteen and write one line on any big difference between forecast and actual.

A rule of thumb: if you cannot explain a variance in one sentence, you do not yet understand the business’s cash well enough. The how-to on P&L, balance sheet and cash flow forecasts covers the longer 12 to 24-month model; the 13-week forecast is its short-range, weekly companion.

Make it a Monday habit

Thirty minutes every Monday is enough once the sheet exists. Chase overdue invoices the same morning. Share the closing balance and lowest projected balance with your co-founder so nobody is surprised.

Worked example

Gridmint is a fictional Sheffield B2B SaaS company selling energy reporting software to facilities managers. Its P&L shows a monthly profit of about £6,000 on £40,000 of revenue, and the founding team planned to hire a second developer. The 13-week forecast told a different story. Its largest customer, a property group, pays on 60-day terms and usually ten days late; a quarterly VAT payment of £14,000 falls in week six; and three annual software renewals land in week eight. The forecast showed the balance dropping to £9,000 in week nine, well below Gridmint’s minimum line of £25,000.

The team acted early: it offered the property group a small discount for switching to quarterly invoicing in advance, moved smaller customers to direct debit, and pushed the developer start date back by six weeks. The lowest projected balance rose to £31,000. The hire still happened, but at a point the cash could support it.

Common mistakes

• Forecasting receipts on invoice terms rather than on how customers really pay.
• Treating VAT and PAYE money as available cash.
• Building the forecast once for a board meeting and never updating it.
• Including hoped-for deals or grant money as if they were certain.
• Looking only at month-end balances, which hide mid-month dips around payroll and tax dates.

What to measure

• Closing cash each week and the lowest projected balance in the next 13 weeks.
• Debtor days: how long, on average, customers take to pay you.
• Overdue receivables by customer, in pounds.
• Forecast accuracy: the gap between forecast and actual cash four weeks ago.