treasury-and-liquidity
Treasury and liquidity
Profitable companies fail on cash. Earnings are an opinion arrived at through accruals; cash is a balance you either have on the day or do not.
Forecast cash directly
The indirect method — net income adjusted for non-cash items — is right for reporting and nearly useless for operating. Build a direct forecast of receipts and disbursements by week, from actual expected timing.
Thirteen weeks is the working horizon: long enough to act, short enough to be accurate. Roll it weekly and compare last week's forecast against what happened. A forecast never checked against outturn does not improve, and its errors are the most useful information it produces.
Model timing, not just amount. A receipt that arrives four days late is the same money and a different liquidity position.