Simple Cash Flow Example

The setup

A two-person consultancy starts January with $3,000 in the bank. They invoice clients on net-60 terms (clients pay 60 days after the invoice). Monthly fixed costs are $4,500.

The numbers

January

• Invoiced: $8,000 (will be paid in March)
• Cash in: $0
• Cash out: $4,500 fixed costs
• End of January balance: $3,000 − $4,500 = −$1,500 🚨

February

• Invoiced: $10,000 (paid in April)
• Cash in: $0
• Cash out: $4,500
• End of February balance: −$1,500 − $4,500 = −$6,000 🚨

March

• Invoiced: $9,000 (paid in May)
• Cash in: $8,000 (January invoice paid)
• Cash out: $4,500
• End of March balance: −$6,000 + $8,000 − $4,500 = −$2,500

Profit vs cash

On paper, this business looks great:

But the bank account is in overdraft. They've earned profit, but the cash hasn't arrived yet — see Cash Flow vs Profit.

What would have helped

• Deposits up front — even 30% upfront would have put $2,400 in the account in January.
• Shorter payment terms — net-14 or net-30 instead of net-60.
• A larger starting buffer — at least 2–3 months of fixed costs.
• A line of credit arranged before it's needed, not after.

Lesson

Profit is the headline; cash is the heartbeat. A simple monthly forecast — even on paper — can save a profitable business from running out of money.