Understanding the numbers · Topic guide
Cash flow
The timing and amount of money entering and leaving a business.
Profit records economic performance under accounting rules; cash flow describes money available when bills fall due. A profitable company can struggle if customers pay slowly, projects pause or debt principal is repaid faster than cash accumulates. For an acquisition, the relevant question is not just whether annual earnings exceed annual payments, but whether cash arrives before each obligation must be met.
The collection’s £3.5m purchase illustration begins with £1m earnings and deducts bank principal, interest and seller repayments, leaving only £150k before other demands. This is a useful bridge toward cash analysis, but it omits tax, capital expenditure and working-capital movements. The remainder should not be labeled distributable cash without those adjustments. Watch source
Prepare a monthly view of collections, payroll, suppliers, taxes, maintenance spending and all financing payments. Investigate the lowest cash point as well as the year-end balance. Sey’s project-business accounts and cash-covenant discussion explain why measurement timing matters: a balance immediately before payroll may tell a different story from one immediately afterward. Strong reported annual earnings cannot resolve a shortfall in a particular week. The practical output is an identified liquidity need and its funding source, with uncertainties made visible rather than buried inside one annual profit number. Watch source Watch source
Follow the connections
EBITDA · Working capital · Debt service.
Continue in the course: Earnings versus cash.
See it in an example
- Hypothetical
£1m earnings, £150k left before other cash needs
Calculate the illustrated bank and seller payments, then identify the cash needs still missing from the remainder.
- Hypothetical
The £800k monthly revenue covenant illustration
Calculate a hypothetical monthly revenue floor and distinguish covenant headroom from available cash.
Numbers in context
- Financial planning horizon · 6–18 months, possibly 36 monthsRule of thumb
Forward budgets are proposed to test possible operating outcomes after buying a business.
A planning horizon does not make a forecast reliable.
- Purported TD offer / GameStop liquidity · ~US$20bn credit; US$6bn cash + US$3bn noncash liquid assetsUnverified claim
The same external deal discussion separates a purported bank credit offer from available liquid assets.
Neither the offer nor completion is independently established, and no Sey borrowing relationship is implied.
- Early liquidity relief claim · £200k/yearHypothetical
The balloon illustration also claims an annual near-term cash saving.
£500k minus £333k is about £167k, not the stated £200k.
- Customer concentration · One customer 100% versus largest customer 10% of revenueHypothetical
Contrasting customer shares illustrate how concentration can change a buyer's risk.
Losing a 10% customer may still erase profit or liquidity; revenue share alone cannot prove resilience.
- Credit sizing · 2x EBITDA; £1m profits → £2m loanRule of thumb
A bank-sizing heuristic relates borrowing to annual earnings.
EBITDA and pretax profit are blurred; the source's £0.5m threshold wording conflicts with its own 2x arithmetic. Includes audio recovered with Whisper; amounts and wording have not been independently verified.
Sources & further viewing 3 videos
The explanations on this site are independent synthesis. Follow each original for full context. A reported experience is not independent proof of a transaction.
- Personal experience Construction liquidity
- Educational Debt-service worked example
- Educational Cash-test measurement timing