A business can make a sale, record a profit and still lack the money needed for its next payment. The explanation often lies in timing: earning revenue and receiving cash do not always happen together.
Profit concerns revenue and the expenses attributed to producing it under the relevant accounting approach. Cash flow tracks money moving in and out. Both matter, but they answer different questions.
The Business Development Bank of Canada’s cash-flow guidance highlights the gap between making a sale and collecting the money. The principle is equally useful to a Nigerian business using naira rather than dollars.
A hypothetical order
Imagine a small supplier receiving a N1 million order. The goods and direct work cost N700,000, suggesting N300,000 before other expenses. But suppose the supplier must pay those costs now while the customer pays in 45 days.
The apparent margin does not provide the N700,000 needed today. Rent, wages and other obligations may also fall due while the invoice remains unpaid. These are invented figures for explanation, not a suggested margin or financing arrangement.
Put dates beside the amounts
A basic forecast should show expected receipts and payments by week or another useful period. Keep uncertain receipts visibly uncertain rather than treating every unpaid invoice as money already available.
Review the forecast when an order changes or a customer delays. A static spreadsheet created once cannot describe a business whose commitments keep moving.
Payment terms also deserve attention before accepting work. A deposit, staged payment or different supplier arrangement may change the cash demands, but the appropriate choice depends on the relationship and contract.
Separate business activity from available money
A busy bank account can be misleading if funds are already committed to tax, suppliers or another obligation. Similarly, buying equipment can affect cash differently from how its cost appears in accounts.
Keep adequate records and obtain qualified accounting or financial advice for your situation. This guide explains a distinction; it does not prescribe a loan, tax treatment or investment decision.
The useful management question is not only “Was this profitable?” but also “When will the money arrive, and what must be paid before then?” Asking both makes growth easier to evaluate. More orders are valuable when the business can deliver them without allowing a promising sales figure to hide an approaching cash shortage.
Build a simple timing picture
Return to the invented N1 million order. Imagine that the business begins with N400,000 available and must pay N700,000 in production costs before receiving the customer’s payment. Even before considering other obligations, it faces a N300,000 timing gap. The eventual sales margin does not make that gap disappear today.
If the customer instead pays an agreed N500,000 deposit before work begins, the timing picture changes. But the deposit is not automatically spare money for the owner: it is connected with delivering the order. Spending it elsewhere could create another shortage when suppliers need payment.
These simplified examples deliberately leave out taxes, financing costs and accounting details. They are a way to see the sequence, not a complete forecast or advice about which payment terms to adopt.
A useful weekly note might record the opening cash position, receipts expected with reasonable confidence, committed payments and the closing position implied by those assumptions. Beside each uncertain receipt, record what needs to happen before it becomes dependable.
The note can then support a conversation with an accountant, customer or supplier. Instead of discovering a problem on the payment date, the owner can see the period in which the assumptions stop working. That is the practical benefit of looking at time as carefully as totals: the business gains a chance to respond before an attractive order becomes an avoidable crisis.
Reconcile the bank balance with commitments
Imagine a small firm has ₦600,000 in the bank on Friday. It also owes ₦350,000 to a supplier on Monday, expects ₦200,000 in wages and has tax or other obligations still to confirm. The visible balance does not mean ₦600,000 is available for a new purchase. A short cash forecast makes the timing visible before the owner commits it twice.
List expected receipts and payments by date, not just by month. Mark the difference between an issued invoice, a customer’s promise and cleared funds. If a large receipt slips, the forecast should reveal the gap and the date it occurs rather than hide it inside an annual profit figure.
Keep an owner’s withdrawal separate from an operating expense in your records, and obtain appropriate accounting advice about treatment of tax, finance and assets. The example is a planning illustration, not a set of financial statements or a recommendation to delay a legal obligation.
A weekly review can ask three questions: which customer payment needs following up, which commitment is not yet recorded and which assumption changed? That is more actionable than discovering at month-end that the bank balance looked healthy only because an important bill had not arrived.
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