You open your business bank account and see a comfortable balance. A new hire, an equipment purchase, or an additional payment to yourself suddenly feels reasonable.
Before making that decision, ask a different question:
How much of that money is already committed?
The amount in your bank account is a starting point. It is not, by itself, a spending limit.
When this becomes a CPA conversation
This becomes a CPA conversation when spending decisions are being made from the bank balance rather than from committed cash, upcoming obligations, and realistic collection timing.
- The owner wants to hire, buy equipment, or increase payments
- Payroll, supplier bills, taxes, debt, or GST/HST payments are coming due
- Customer receipts are uncertain or arrive after major payments
Cash Commitment Check
Can the business safely use the cash it sees?
Review upcoming obligations, reserve levels, collection timing, and discretionary spending decisions.
Preparing the assessment...
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Profit and cash answer different questions
Your income statement shows financial performance over a period. Your bank balance shows cash at a particular moment. They are not interchangeable.
Under accrual accounting, revenue is generally recorded when earned, not necessarily when collected. Expenses are generally recorded when incurred, not simply when paid. This means a profitable month can include customer invoices that have not yet turned into cash.
Consider a business that completes and invoices a $40,000 project in June but receives payment in August. The revenue and the cash collection belong to different periods.
That timing difference matters when June payroll and supplier payments still need to be funded.
The practical question is not only, “Are we profitable?” It is also, “Will the cash arrive before the payments are due?”
A $120,000 balance can leave much less room than you expect
Consider a business with a reconciled bank balance of $120,000.
For this simplified example, assume the following separate payments will fall due before the next customer receipts:
| Cash position and upcoming commitments | Amount |
|---|---|
| Starting bank balance | $120,000 |
| Supplier invoices due | ($42,000) |
| Net payroll payments | ($30,000) |
| Tax and payroll remittances | ($18,000) |
| Loan payments | ($10,000) |
| Cash remaining after these payments | $20,000 |
| Operating reserve selected for this example | ($15,000) |
| Remaining cushion above the reserve | $5,000 |
The owner sees $120,000 in the bank. Under these assumptions, the cushion above the business’s chosen reserve is only $5,000.
A $25,000 cash purchase would therefore require a change in the plan, such as additional collections, financing, or different payment timing.
This is an internal cash-planning estimate. It does not establish how much an owner can appropriately withdraw from the company.
Look at the lowest balance, not just the month-end balance
A forecast can show enough cash at the end of the month while still revealing a shortage in the middle.
For example, a large customer payment might arrive on the 28th, while payroll is due on the 15th. The monthly totals may look fine, but the timing does not.
A rolling 13-week cash forecast helps make these gaps visible. The purpose is not to predict every transaction perfectly. It is to identify pressure early enough to respond.
Build a practical cash review
Start with reconciled cash and account for payments already initiated. Avoid treating a payment as both an outstanding commitment and an amount already deducted from the starting balance.
Next, forecast customer collections based on realistic payment dates. An invoice due next week is not the same as a customer who has confirmed payment next week.
Then map payroll, supplier payments, tax remittances, debt payments, and planned purchases to their expected dates.
Finally, choose an operating reserve that reflects your circumstances. A business with seasonal sales, a few large customers, or unpredictable collections may need a different cushion from one with stable recurring receipts.
Review the forecast before approving discretionary spending, not after.
The bottom line
Your bank balance tells you what is there. A cash forecast helps you decide what can leave.
Before hiring, buying equipment, or increasing owner payments, understand the commitments and timing behind the balance.
Finexa CPA Advisory helps owner-managed businesses across British Columbia connect reliable accounting with practical cash-flow planning.
Written by
Bobby Molaie, CPA, MAccFounder and lead advisor at Finexa CPA Advisory