You open your banking app and see money sitting in the account. The balance looks healthy, so you approve a purchase, pay a vendor, order materials, or take an owner’s draw. Then payroll hits, a few outstanding checks clear, your credit card payment comes out, and a loan payment gets withdrawn. Suddenly the cash that looked available is almost gone.
This happens because your bank balance doesn’t tell you how much cash your business can safely spend. It only tells you how much is in the account at that exact moment, and some of that money may already be committed to something else.
Your Bank Balance Is Only a Snapshot
Your bank balance shows the transactions that have cleared the account. It may not include checks that have been written but haven’t cleared, vendor bills that still need to be paid, upcoming payroll and payroll taxes, credit card payments, loan and equipment payments, automatic withdrawals, sales tax or income tax obligations, materials needed for upcoming jobs, or customer deposits that have to be used for a specific project.
That means a $40,000 bank balance doesn’t always mean you have $40,000 available to spend. The money may be sitting in the account, but part of it already has a job.
Revenue, Profit, and Cash Are Not the Same
Your business can have strong sales and still hit a cash shortage. You may have completed the work and sent the invoice, but that doesn’t mean the customer has paid you yet. The revenue may show up on your Profit and Loss statement while the money is still sitting in Accounts Receivable instead of your bank account.
Meanwhile you still need to pay employees, subcontractors, suppliers, insurance, fuel, rent, taxes, equipment loans, and credit cards. A profitable business can still run short on cash when money comes in slower than it goes out.
Review These Numbers Before You Spend
Before making a large purchase or taking money out of the business, look at more than the current bank balance.
Current bank balance. Start with the amount actually available in your checking and savings accounts.
Outstanding checks and payments. Review any checks, bill payments, ACH transactions, or transfers that have already been issued but haven’t cleared yet. That money may still show up in your bank balance even though it’s already been spent.
Accounts Payable. Look at the bills your business owes and when they’re due, paying close attention to payroll, taxes, vendors, subcontractors, insurance, loans, and credit cards.
Accounts Receivable. Review what your customers still owe you, but don’t count every open invoice as cash you’ll receive right away. Consider the due date, the customer’s payment history, and whether the invoice has actually been sent.
Upcoming automatic payments. Review what’s scheduled to come out of the account over the next few weeks, including software subscriptions, vehicle payments, insurance, utilities, equipment loans, and credit card payments.
A Simple Example
Say your current bank balance is $40,000. You also have $6,000 in outstanding checks, $14,000 in payroll and payroll taxes, $9,000 in vendor bills due, and $4,000 in loan and credit card payments. Once those obligations are covered, only $7,000 is actually uncommitted. That’s a very different picture from the $40,000 showing in the bank.
Give Every Dollar a Job
A simple cash plan helps you see what the money in your account actually needs to cover. Start with your current bank balance, subtract the bills, checks, payroll, taxes, and automatic payments that must be paid, then add only the customer payments you reasonably expect to collect during that same period. That gives you a much clearer picture of what your business can safely spend, and it can help you decide whether to delay a purchase, follow up on overdue invoices, adjust the timing of vendor payments, move money into a tax savings account, reduce an owner’s draw, or build a larger cash reserve.
Knowing what you owe is only half of that equation. Knowing how to actually prioritize and pay those obligations without damaging the vendor relationships you depend on is the other half, which is exactly what we’ll walk through next.
QuickBooks Can Help, but Only When It Is Current
QuickBooks can help you review your Accounts Payable, Accounts Receivable, outstanding checks, upcoming expenses, and cash activity. But those reports are only useful when the bookkeeping behind them is accurate and up to date. If bills haven’t been entered, invoices haven’t been created, payments have been duplicated, or bank transactions haven’t been reviewed, your reports may be giving you an incomplete picture.
Consistent bookkeeping is what gives you the information you need to make better decisions before the cash gets tight. This is the Assess step of the AIM Method at work. You can’t plan a confident spending decision on a number that’s only telling you part of the story.
Ask a Better Question
Instead of asking how much money is in the bank, ask how much of the money in the bank is actually available after everything you already owe is covered. That single question can help you avoid spending money that’s already committed, scrambling to cover payroll, falling behind with vendors, or relying on credit cards to cover a cash shortage you could have seen coming.
Your bank balance is useful, but it’s only one piece of the financial picture. Your bank balance tells you what’s there. A cash plan tells you what you can safely spend.
This week, we’re breaking that financial picture down into two halves: what your business owes, and what your business is owed. Up next, we’ll cover how to prioritize what you pay without damaging the vendor relationships that keep your jobs moving.
