PROBLEM
A healthy bank balance can make a business owner feel like everything is fine.
But the money sitting in your account today isn't necessarily the money you'll still have available next month.
Before the year ends, your business may still need to cover:
Payroll
Rent
Vendors
Insurance
Debt payments
Taxes
Software and subscriptions
Inventory or supplies
Holiday expenses
Year-end purchases
At the same time, some of the revenue you've earned may still be sitting in unpaid invoices.
That's why looking at your bank balance alone doesn't tell you whether you have enough cash to comfortably finish the year.
Cash-flow planning means looking at both what's available now and what's expected to come in and go out next. The SBA similarly emphasizes tracking available cash, accounts receivable, accounts payable, and cash-flow projections when managing business finances. Small Business Administration
DIRECT ANSWER
To determine whether your business has enough cash to finish the year strong, review five things:
01 — Cash available now
02 — Money you realistically expect to collect
03 — Upcoming business obligations
04 — Year-end expenses
05 — The cash cushion you want to maintain
The goal isn't to predict every dollar perfectly.
It's to avoid reaching December and realizing that more cash was already committed than you thought.
HOW-TO: 5 Things to Review Before Year-End
1. Start With the Cash You Actually Have
Begin with your current business cash position.
Review the balances in the accounts your business actually uses.
But don't stop there.
Your bank balance tells you how much cash is there today. It doesn't tell you everything that cash needs to cover.
That's the difference between asking:
“How much money do we have?”
and:
“How much of this money is actually available?”
2. Review the Money You Expect to Come In
Next, look ahead.
What cash does the business realistically expect to receive before year-end?
That might include:
Open customer invoices
Recurring client payments
Scheduled customer payments
Seasonal sales
Contract payments
Other expected revenue
Be realistic.
An invoice you've sent isn't the same as cash you've collected.
If customers typically take 30, 45, or 60 days to pay, account for that timing in your planning. This distinction is one reason cash-flow projections can reveal potential shortages even when a business appears profitable on paper. Small Business Administration
3. List Your Upcoming Obligations
Now look at what still needs to be paid.
Include your regular expenses, such as:
Payroll
Rent or mortgage
Utilities
Insurance
Vendor payments
Debt payments
Software
Contractors
Inventory
Supplies
Taxes
Don't rely on memory.
Actually make the list.
Seeing the obligations together gives you a much clearer picture of how much of today's cash is already spoken for.
4. Plan for Year-End Expenses
The final months of the year can bring expenses that don't happen every month.
Depending on your business, that could include:
Employee bonuses
Holiday pay
Client gifts
Staff events
Additional inventory
Seasonal staffing
Equipment
Maintenance
Annual subscriptions or renewals
You may also be considering making a large purchase before December 31.
Before spending the money, ask:
Does the business need this?
Can we comfortably afford it?
What will our cash position look like afterward?
A purchase shouldn't make sense only because it's the end of the year.
5. Decide How Much Cash You Want Left
Finishing the year with enough money to pay the bills isn't necessarily the same as finishing with a comfortable cash position.
Your business may also need a cushion for:
Unexpected repairs
A slow sales month
Delayed customer payments
Higher-than-expected expenses
An emergency
Opportunities that require cash
There isn't one universal cash-reserve number that works for every business.
The right amount depends on factors such as your expenses, revenue predictability, upcoming obligations, seasonality, and risk.
The important thing is to decide intentionally how much cash you want the business to maintain rather than simply seeing what's left.
COMPARISON: Bank Balance vs. Cash-Flow Planning
BANK BALANCE
“How much money is in the account?”
Looks at today.
Can make available cash appear larger than it really is.
Doesn't automatically account for upcoming bills.
CASH-FLOW PLANNING
“What does this money still need to cover?”
Looks ahead.
Considers money coming in.
Considers money going out.
Helps identify possible cash shortages earlier.
Your bank balance is a number.
Cash-flow planning gives that number context.
REALITY CHECK
A business can be profitable and still experience cash-flow problems because profit and available cash are not the same thing. Timing matters: when customers pay, when bills are due, and when large expenses occur can all affect the cash available to operate the business. Small Business Administration
That's why this review isn't about creating a perfect forecast.
It's about knowing what's ahead.
If you know a large insurance payment is coming, plan for it.
If several customers haven't paid, don't count that money as though it's already sitting in the bank.
If holiday expenses are coming, include them now.
And if cash looks tighter than expected, finding out in October gives you more options than discovering it in late December.
Before the year gets any busier, sit down and fill in these five numbers:
Cash available today: $_____
Expected cash coming in: $_____
Expected expenses: $_____
Taxes and other obligations: $_____
Desired cash reserve: $_____
Then ask:
What does that leave us with?
You don't have to wait until December 31 to find out how your business finished the year.
Look ahead now.
This article is for general educational purposes and is not individualized financial, accounting, or tax advice.