A profit forecast is incomplete when management needs to know whether the business can fund its plans. Revenue may be recognized before collection. Inventory, equipment and payroll may require cash before the related sales arrive. The timing can change the recommendation even when the income statement looks healthy.
Work through the bridge
Consider a fictional company with $300,000 of opening cash and quarterly EBITDA of $240,000. Cash taxes are $30,000, capital expenditure is $90,000, working-capital investment is $110,000, cash interest is $20,000 and scheduled principal is $40,000.
| Cash movement | Amount |
|---|---|
| EBITDA | $240,000 |
| Taxes | −$30,000 |
| Capex | −$90,000 |
| Working-capital investment | −$110,000 |
| Cash interest | −$20,000 |
| Principal | −$40,000 |
| Net movement | −$50,000 |
Closing cash is $250,000. If management requires a $200,000 operating minimum, headroom is $50,000. An additional $80,000 collection delay takes closing cash to $170,000, below the minimum, without necessarily changing the quarter's recognized revenue.
This is a simplified bridge with supplied assumptions. A live forecast should reconcile to the company's accounting definitions and cash schedules rather than treating every EBITDA figure as interchangeable.
Ask whether the problem is timing or economics
A delayed collection may reverse next month, while a disputed invoice may become a loss. A one-time equipment purchase differs from recurring maintenance. A temporary seasonal inventory build differs from stock that is no longer selling.
The response depends on that distinction. Faster collection, staged capex or usable financing may address timing. Persistent weak margins or uncollectible sales require a different plan. Delaying a supplier payment has consequences and is not permanent savings.
Build the forecast at the required frequency
Annual and quarterly models can hide a low point within the period. If payroll falls before the main customer receipts, month-end cash may look adequate while a mid-month obligation is difficult to fund. Use the cadence needed for the decision.
Start with unrestricted cash. Identify the minimum balance and any restricted funds. If using a revolver, confirm actual availability and conditions; the facility's headline size may overstate usable cash.
Explain the result in an interview
Lead with the decision: the base case retains $50,000 above the minimum, but a plausible collection delay creates a $30,000 gap. Then identify the action owner and evidence needed. Do not claim that the company is insolvent from one simplified scenario or that profitability eliminates the concern.
The FP&A modeling guide explains how to keep the spreadsheet reviewable. The FP&A workbook connects cash timing with staffing and investment decisions, including complete practice solutions. Return to the FP&A desk for the full preparation path.
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