Profitable but short of cash: a 13-week forecast for a Hong Kong SME

A company can make a profit and still struggle to meet Friday's payments. Customers may have received their invoices but not paid. Stock has absorbed cash. A tax instalment falls due before the next large collection. The profit and loss account alone cannot tell you whether the bank balance will cover that week.

A 13-week cash forecast puts expected receipts and payments into the weeks when the money should move. Start with available cash, use specific customer collection dates and include commitments already made. Then test what happens if an important receipt arrives late.

A complete 13 week example

This is a fictional Hong Kong services business. Its latest completed month showed revenue of HK$200,000, direct costs of HK$100,000 and operating overheads of HK$75,000: operating profit before tax of HK$25,000. Some revenue remains uncollected. Those historical profit figures do not determine the timing of the next 13 weeks' cash movements.

The forecast starts with HK$80,000 of unrestricted bank cash. There is no assumed borrowing, fresh shareholder funding or investment income. All figures in the table are HK$ thousands, so “80” means HK$80,000. Suppliers include the operating payments other than payroll, rent and tax shown separately. Payroll includes the salary-related cash commitments assumed for this example; it is not a statutory payroll calculation.

Other payments comprise a fictional HK$20,000 tax instalment due in week 1 under the company's own hypothetical notice, plus HK$10,000 rent in weeks 2, 6 and 10. No tax rate or universal tax-payment date is implied. Actual forecasts must include every relevant payment, including loan instalments, equipment, deposits and owner withdrawals.

Each closing balance equals opening cash plus collections less the three payment columns. Across the full period, HK$80,000 opening cash plus HK$745,000 collections, less HK$335,000 suppliers, HK$240,000 payroll and HK$50,000 other payments, leaves HK$200,000.

The final balance looks comfortable. Week 1 is much tighter: HK$5,000 remains after the forecast payments. A director who only reads the quarter-end number could miss the immediate funding need. Weekly totals also conceal the order of payments within a week, so the first fortnight should be checked by day where cash is this tight.

Delay one customer and test the consequence

Assume the whole HK$40,000 collection in week 1 arrives in week 3 instead. It is moved once, rather than entered as an extra receipt. Every other assumption stays the same.

From week 3 onwards the two forecasts agree because the delayed receipt has arrived. The earlier shortfall still matters. Negative cash here means the business cannot make all the assumed payments without some action; it does not mean a bank has agreed an overdraft.

Before week 1, the owner could confirm the customer's actual payment status, seek an earlier part-payment or discuss feasible supplier terms. Any revised terms need the other party's agreement. A proposed loan or shareholder injection belongs in a separate scenario until the amount, timing and availability are sufficiently supported. The company should not plan to miss payroll, tax or contractual payments on the assumption that someone will eventually agree an extension.

The forecast helps identify the size and timing of a problem. It does not establish solvency or replace advice where the company may be unable to pay debts as they fall due. A threatened shortfall calls for prompt professional review while there is still time to act.

Build a forecast the owner can maintain

Use the aged receivables list, open purchase orders, supplier statements, payroll calendar and actual tax notices as inputs. Give each significant receipt a customer, amount, expected date and reason for that date. An invoice due in two days but disputed for a month deserves a different assumption from a customer who has supplied payment confirmation.

A sales target should not flow straight into the cash line. Show when an order is expected, when it can be delivered, when it will be invoiced and when payment is likely. For stock businesses, include purchases before the related sale. The ICAEW cash forecasting guide similarly treats customer timing, supplier timing and inventory as inputs to a forecast.

Update the file each week. Replace the completed week with actual movements, explain the largest differences and add a new week at the end. Keep the previous version so you can distinguish a genuine improvement from a payment quietly pushed into the future. Restricted cash and uncommitted facilities should remain clearly identified.

For a first discussion with IMSG's CFO advisory service, prepare current bank balances, aged receivables and payables, committed spending and your next significant decision. An agreed scope can then focus on the assumptions that need checking and the weeks when management must act.

General information only. All figures and dates in this example are fictional. A forecast depends on its assumptions and does not guarantee future cash or funding.

These illustrative scenarios explain common administrative issues. They do not describe specific clients or guarantee an outcome. Legal and tax questions require advice on the circumstances concerned.