We touched on the profit-versus-cash gap a couple weeks back, when we talked about why a busy season doesn't always mean a business feels flush. This time, let's actually walk through what a cash flow forecast looks like and how to read one, because knowing the concept and knowing how to use the tool are two different things.

A cash flow forecast is different from a P&L in one important way. A P&L shows income and expenses when they're earned or incurred, following accounting rules that don't necessarily match when money actually moves. A cash flow forecast tracks when cash actually comes in and actually goes out, week by week or month by month, which is the number that determines whether you can cover payroll on a given Friday.

The forecast starts with your current cash position, the real number sitting in your account today. From there, it adds expected cash inflows, meaning payments you expect to collect on outstanding invoices, based on realistic timing rather than optimistic timing. A commercial customer on net-30 terms isn't paying you next week just because the invoice says thirty days. It's paying you when they actually pay, which your own payment history with that customer usually predicts better than the terms on the invoice.

Then it subtracts expected cash outflows: payroll, loan payments, insurance, rent, and planned purchases like materials for upcoming jobs or a piece of equipment you're planning to buy. What's left at the end of each period is your projected cash position, and watching that number move week to week or month to month is what actually tells you whether a crunch is coming before it arrives.

The forecasts we build for HVAC clients project 90 days forward and update as actual numbers come in, so it stays a living tool rather than a one-time projection that goes stale after a month. That rolling structure is what makes it useful for actually catching a problem while there's still time to do something about it, whether that means delaying a purchase, following up harder on a slow-paying customer, or drawing on a line of credit before you're in a genuine bind.

Jeremy Brewer is the founder of 911 Bookkeepers LLC in Baton Rouge, Louisiana. He worked in the field as an HVAC tech before building books for the trades, and he serves as a licensed paramedic in EMS. He is a Xero Certified Advisor.