cash gap
Also called: cash shortfall
A period when planned payments exceed the cash available, even if the business is profitable over the year.
A cash gap is a period when the payments a company has to make exceed the cash it has, or, in a stricter sense, when the balance falls below the buffer it needs to operate safely. It can happen to a profitable business, because profit and cash run on different calendars.
The usual causes are timing, not losses: prepayments collected in one season and spent on service in the next, customers paying on long terms, providers paid soon after the work, a large purchase paid at once, seasonal dips in sales. Growth can cause a gap too: a profitable line sold on payment terms ties up more cash the faster it grows.
A gap found months ahead is cheap to close; one found the week before payday is expensive. The cheap levers move timing: delaying or leasing a purchase, opening sales earlier, invoicing more often, asking for deposits, trimming spending that doesn't bring revenue soon. A credit line is a sensible backup, best arranged while the numbers still look healthy, but it shouldn't be the plan.
Example
Klasna's school year to 31 August 2026 (June to August forecast): operating profit 744,174.72 UAH, yet cash falls by 747,319.75, from 600,000 to −147,319.75.
To keep 500,000 for the September salaries, Klasna needed 500,000 + 147,319.75 = 647,319.75 more by 31 August. The same thing threatened 2027: three new Teams contracts invoiced quarterly on 60-day terms would take August to −105,217.50. Invoicing monthly with 30-day terms keeps every month above the 1,000,000 buffer, at a lowest point of 1,224,590 in January.
Common mistakes
- Assuming profit protects you. A profitable year can end below zero.
- Sizing the gap against zero. Measure it against the buffer you need.
- Reading averages. A seasonal business can look fine on average and fail in its lowest month.
- Reaching for a loan first. Timing levers are often cheaper; arrange credit early as a backup.
- Signing growth on terms without a plan. Run new contracts through the cash plan before signing.
Learn it in the course
- Case: profitable on paper, short of cash in August · A year of profit and cash side by side: find what causes the cash flow problems, size the August gap and write a plan to fix it without panic borrowing.
- A twelve-month cash flow forecast · A cash flow forecast example, month by month with real payment timing: prepayments, payouts twice a month, quarterly invoices and the summer valley a yearly total hides.