The number that determines whether you survive
A profitable business can fail. It happens every month in BC. The owner looks at the year-end profit and loss statement, sees a healthy net income, and cannot understand why the bank account is empty and suppliers are calling. The reason, almost always, is cash flow — the timing gap between earning money and actually receiving it.
This is the practical guide we use with Fluent Books CFO Advisory clients to bring the bank balance and the profit statement back into agreement.
What cash flow actually measures
Cash flow is the movement of money into and out of your business over a period. It is different from profit because:
- Revenue is recognised when you invoice, but cash arrives when the client pays — often 30, 60, or 90 days later
- Expenses are recognised when incurred, but you pay them on different schedules
- Capital purchases reduce cash today but are deducted over many years
- Loan principal repayments reduce cash but are not expenses
- Sales tax sits in your account temporarily but is not yours to keep
A business can have $50,000 in profit on paper and zero dollars in the bank if every client is paying late and the corporation just bought a $40,000 piece of equipment.
The 13-week cash flow forecast
The single most useful tool we deploy is the 13-week cash flow forecast. It is granular enough to see real problems, short enough to be accurate, and long enough to give you time to act.
The structure is simple — a spreadsheet with weeks across the top and rows for:
- Opening bank balance
- Cash inflows (by source: customer A, customer B, GST refund, owner contribution)
- Cash outflows (by category: payroll, rent, suppliers, loan payments, GST/PST remittance, owner draws)
- Closing bank balance
Update it weekly. Compare actual to forecast. Adjust assumptions. Within two months you will see patterns: which weeks are tight, which weeks are flush, which categories you consistently underestimate.
We build these in Google Sheets for clients because they are easy to share and update. There are also dedicated tools — Float, Pulse, Helu — but a spreadsheet is fine to start.
Accelerating receivables
Most BC small businesses leak the most cash through their accounts receivable. The fixes are often boring and almost always effective.
- Invoice immediately. Same day as work is delivered, not at the end of the month. Every day of delay is a day longer until payment.
- Shorten payment terms. Net 30 is industry default; net 14 is increasingly normal for small business. Net 7 is acceptable for many service businesses.
- Take deposits. 30–50 percent up front for project work. The first deposit covers your costs; the final payment is profit.
- Offer a small early-payment discount. A 2 percent discount for payment within 10 days often nets faster cash and better client relationships.
- Charge interest on overdue accounts. Specify it in your terms. Charging it occasionally signals you mean it.
- Follow up systematically. Day 1, 7, 14, and 21 after due date. Most clients pay on the second reminder.
- Use accounting software automation. QuickBooks, Xero, FreshBooks all automate reminders. Turn it on.
Managing payables strategically
The other side of cash flow is when you pay. The principle: keep cash as long as possible without damaging supplier relationships or accumulating fees.
- Negotiate longer terms with major suppliers. Net 30 is often available for the asking.
- Pay on the due date, not before. Set payments to release on the due date through your bank.
- Use credit cards strategically. A credit card with a statement date timed well after a major supplier's due date can extend cash by another 25 days. Pay off in full to avoid interest.
- Avoid penalty interest. It is the most expensive money in your business. Late payments to CRA, WorkSafeBC, or suppliers compound quickly.
Building a runway
The number every small business owner should know: how many months can the business operate at zero revenue?
The formula: cash on hand divided by monthly fixed costs (rent, payroll, key software, debt service). If the answer is less than three, your business is fragile. If it is six or more, you have real flexibility.
Building runway is slow and unsexy. The path is the same every time:
- Generate consistent profit
- Take less out of the business than you could
- Hold the surplus in a separate high-interest business savings account
- Resist the temptation to invest it in growth until the runway is long enough
A business with a six-month runway can survive a slow quarter, weather a key client loss, and seize an opportunity that requires capital. A business with a one-week runway lurches between crises.
Seasonality
Many BC businesses are seasonal — tourism, landscaping, retail, hospitality. The mistake is treating December cash like September cash. Seasonal businesses need:
- A separate seasonal-reserve account funded during peak
- A 12-month forecast that explicitly maps the dip
- Discipline to draw less in the high months
- A line of credit arranged in calm times, not when it is needed
The CRA cash trap
The most insidious cash leak is sales tax and payroll source deductions. GST collected from clients sits in your bank account for one to three months before remittance. The same applies to CPP, EI, and tax withheld from payroll.
This money is not yours. Spending it because it is in the account is a failure of cash management — and a failure the CRA punishes with personal director liability for unpaid source deductions.
The fix: a separate tax-and-payroll savings account. Every payroll, sweep the source deductions into it. Every sale, sweep the sales tax. When the remittance is due, the cash is already there.
Lines of credit, the right way
A business line of credit is the cheapest emergency cash available. Arrange one when your business is healthy and your numbers are strong — that is when banks lend on good terms. Use it sparingly: bridging a slow month, smoothing a payroll cycle, taking advantage of a supplier discount. Do not use it to fund losses.
What CFO Advisory actually does
For Fluent Books CFO Advisory clients, we build the 13-week forecast, review it monthly with the owner, model major decisions before they are made (hiring, equipment, expansion), and act as the financial second-set-of-eyes that small businesses rarely have access to. Most of our clients have never had a CFO and did not realise how much clarity the role provides until they had one.
If you want to know your real cash position — and the realistic path to a longer runway — book a CFO Advisory call and we will start with your last 90 days.