Draft for Ciaran's read, not published

Learn

The five cash positions a business can be in. Which one are you?

I put these five labels together after years of watching owners with near-identical businesses live completely different lives. The thing that separated them was never the P&L. It was how many months of cushion sat behind the same monthly cost base. To make that concrete, every example below is the same business: a £42,000-a-month cost base, five to eight heads, a bit of rent, a bit of marketing, the usual software subscriptions. Only the cash changes.

1. On the cliff edge

Money in the bank, but once payables and receivables are adjusted, net cash is negative and there is no cushion at all. I have worked with a few of these, and the owner's life is micromanagement: timing every payment, watching every receipt, keeping the balance in exactly the right place, because the alternative is the business closes. It is survivable, but it is a full-time job on top of the actual job.

2. Living hand to mouth

Some cash, positive net cash, but less than one month of cost base. Still very high risk. The difference from the cliff edge is real but thin: there is something between you and the wall, just not enough to stop watching it daily.

3. One shock from trouble

Around a month of cushion. The test I use: a slow month and a no month. One big hit that takes out a month of margin, and this business drops from high risk to very high or critical. But the cushion counts for something: it buys the time to react, which the first two positions do not have.

4. Room to breathe

Two to three months of cushion. Now a shock, a down month, a slow-paying customer, is something you ride through rather than a crisis. Decisions stop being forced. You can feel the difference in this position, and so can everyone who works for you.

5. The resilient builder

Same £42,000 cost base, but money in the bank that was built deliberately, over time, not in one lucky month. This business still manages cash, still wants to grow, still invests, but it does all of it from a position of strength. Small shocks do not register. A slow payer is an annoyance, not an emergency. Growth decisions are made with cash in the bank rather than on hope. That is resilience built into the balance sheet, and it is a choice, not luck. The five-year client story on the cushion formula page is what this position looks like lived in.

For accountants, bookkeepers and fractional FDs: triage by position

The five labels earn their keep fastest across a client list. Band every client by months of cushion and your week orders itself: cliff-edge and hand-to-mouth clients get the proactive call, one-shock clients get watched, room-to-breathe and resilient clients get growth conversations instead of rescue ones. It is the difference between a portfolio you react to and one you triage. A weekly briefing per client does the banding for you.

Finding your position in thirty seconds

You can work it out by hand: net cash divided by monthly cost base, in months. Or connect your Xero read-only to Own Your Numbers and it calculates your position, and the risk rating that goes with it, in about thirty seconds. I am always curious what people think they are before they run it. Have a guess first, then check it against a clean set of books.