An organisation should project its cash requirements on a rolling basis assuming a “reasonable estimate of the worst case” and ensure that it has sufficient cash reserves to see it through. Remember that banks are not going to be sympathetic to borrowers who are fast, or unexpectedly, running out of cash.
A rule of thumb is to have cash (or overdraft facilities or other guaranteed liquid resources) to cover three months of normal expenses. If your projection gives a requirement less than this, question strongly how you expect to pay the salaries and the rent – not to mention any cost of business activities – until money starts coming in.
Even if you have three months’ costs covered, you should be planning on a broad brush basis for 6 months, a year, and longer. If your business is going to expand, your working capital needs are like to expand at the same time while the increase in income is likely to come a few months later. You do not need an exact calculation, but you should aim to quantify your approximate cash needs in each period and ensure that you have cash or borrowing capacity to cover. If you do not, then you need to start making alternative arrangements now.
Top Tip: One to be avoided (and a classic route to bankruptcy) is to grow a business rapidly without adequate cash in hand; this is called “overtrading”.