A small events company has its best quarter ever. Three big corporate bookings, healthy margins, a spreadsheet glowing with profit. Then, in the middle of the busiest month, the owner can’t pay her suppliers. The corporate clients pay on 60-day terms. The marquee hire, the caterers and the staff want paying now.
On paper, the business is thriving. In the bank account, it’s nearly empty.
This is one of the most common and least discussed dangers for young businesses. Growth often makes it worse, because more work means more money going out before more money comes in. And many owners don’t know the one number that would tell them how close to the edge they’re standing: how many days the business could keep paying its bills if money stopped coming in tomorrow.
One Like insight: Profit tells you whether the business works. Cash tells you whether it survives long enough to find out.
Twenty-seven days
In 2016, the JPMorgan Chase Institute published one of the largest studies of small-business cash ever undertaken. It analysed around 470 million transactions from roughly 597,000 small businesses with accounts at the bank, and introduced a simple measure: cash buffer days, the number of days a business could cover its normal outgoings from its cash balance if all income stopped.
The median small business held 27 cash buffer days. A quarter held fewer than 13. The figure varied widely by industry: the median restaurant held just 16 days, while the median real-estate business held 47. Labour-intensive businesses, where wages make up a large share of costs, held fewer days than capital-intensive ones.
The study is American and now a decade old, so the exact numbers shouldn’t be applied too literally to a South African business in 2026. But the shape of the finding is sobering and probably familiar. Half the businesses in a very large sample were living, in effect, month to month. One late-paying client, a slow season or an unexpected repair could push many of them into difficulty within weeks.
Why profitable businesses still run short
The events company’s problem is one of timing rather than profitability. Profit is calculated when work is done and invoiced. Cash arrives when customers actually pay. In between sits a gap, and the business has to fund it.
That gap grows in a few predictable ways. Customers on long payment terms, or who simply pay late, stretch it. Paying suppliers upfront or buying stock in advance stretches it further. And rapid growth can stretch it dramatically: winning three big contracts at once means paying for three jobs before any of the money comes in. It’s entirely possible to grow your way into a cash crisis.
The practical response is to know your own number. Divide your current cash balance by your average daily outgoings, and you have your buffer days. Then look ahead: when are the big bills due, when will customers actually pay, and where does the balance dip lowest? A simple 13-week cash forecast, even in a basic spreadsheet, turns a vague sense of worry into something you can plan around.
[Infographic placement] The cash gap. A horizontal timeline over 90 days. Early on, red arrows for money going out: deposit to suppliers (day 1), staff wages (day 15), equipment hire (day 30). Later, a single green arrow for the client payment (day 60). A line beneath shows the bank balance dipping to its lowest point just before day 60. Caption: Profitable on paper, short of cash in the middle. JPMorgan Chase Institute: the median small business held only 27 days of cash buffer.
Building a bigger buffer
There’s no single right number of buffer days; it depends on how predictable your income is and how quickly you could cut costs if you had to. But knowing your number, and watching whether it’s rising or falling, is one of the simplest habits a young business can adopt.
If the number is uncomfortably low, the levers are familiar ones. Ask for deposits or staged payments on larger jobs. Invoice promptly and follow up the day a payment is late. Negotiate supplier terms that match your customers’ terms more closely. Be cautious about taking on several large jobs at once without the cash to carry them. And when times are good, set aside part of the surplus as a reserve, rather than spending it all on growth.
A few questions can help:
- If every customer stopped paying today, how many days could we keep going?
- When is our cash likely to be at its lowest in the next three months?
- Which customers or jobs stretch the gap between paying out and getting paid?
- Could deposits or staged payments shorten that gap?
Which brings us back to the events company and its record quarter. A cash forecast wouldn’t have made the corporate clients pay any faster. But it would have shown the dip coming weeks in advance, in time to ask for deposits, stagger supplier payments or arrange short-term finance. The business was always going to be profitable. The forecast is what would have kept it safely afloat while it got there.
Sources
- JPMorgan Chase Institute, “Cash is King: Flows, Balances, and Buffer Days. Evidence from 600,000 Small Businesses”, September 2016.
