Your Bank Balance Is Lying to You
THE SHORT ANSWER
The difference between available cash and your bank balance is everything you have already committed but not yet paid. Your bank balance is the total sitting in your accounts right now. Your available cash is what remains after reserved funds, restricted balances, and committed outflows are subtracted. The two numbers can differ by more than half.
A CEO leans in his CFO's doorway with coffee in one hand and his phone in the other. He has just glanced at the balance and he feels good about it.
"We have $1.4 million in the bank," he says. "We're fine, right?"
His CFO sets down her pen.
Her answer takes about ten seconds. It changes the number by $845,000.
This conversation happens in the book. It has also happened, in various forms, in virtually every company I have ever walked into.
What is the difference between available cash and bank balance?
Bank balance is the total of all dollars in your accounts at this moment. Available cash is what remains after you account for committed outflows, reserved funds, and restricted balances, which are obligations already in motion that simply have not cleared yet.
The gap between those two numbers is where operating surprises live. Three terms explain the whole of it.
What is reserved cash?
Reserved cash is money you have set aside by choice. Payroll for the cycle that is coming. A quarterly tax payment. A planned equipment purchase. A vendor settlement you have agreed to.
Nobody is legally stopping you from spending it on something else. You have committed it operationally. Treating it as available is how owners end up short in a week they thought was covered.
What is restricted cash?
Restricted cash is money you contractually cannot access. Funds held in escrow. Customer deposits for work not yet performed. Minimum cash balances required under a bank covenant.
Reserved cash is a management decision. Restricted cash is a legal obligation. Both reduce your true available cash below the balance your banking app displays.
What counts as a committed cash outflow?
A committed outflow is any payment that has been approved, initiated, or contractually obligated but has not yet cleared the account. Payroll in the processing queue. A vendor check mailed yesterday. An ACH scheduled for Thursday. An owner distribution approved at last month's meeting.
All of it is real. Your bank balance still shows it as available, because the money has not moved. A $1.4 million balance with $600,000 in committed outflows is an $800,000 cash position. The two numbers tell very different stories.
A $1.4 million balance against a $400,000 monthly burn is three and a half months of runway. The same balance against an $800,000 burn is under two months. Same balance. Very different position.
So what was the real number?
After payroll processing Monday, a customer deposit being held for a client project, the bank's required minimum balance, and a vendor check mailed the previous Friday, available cash was $555,000.
The bank balance said $1.4 million. Both numbers were accurate. Only one of them described what the company could actually do that week.
How do I calculate my true available cash?
Start with the total across all operating accounts. Subtract restricted balances first, because you have no discretion there. Subtract reserved funds next, meaning payroll through the next cycle, taxes accrued, and anything already promised. Subtract committed outflows last, meaning everything approved or in flight that has not cleared.
What remains is the number that governs what you can actually do this week. It is the number to bring to a banking conversation, a hiring decision, or a capital purchase.
One CEO in the book, asked at a peer group what single number he wished he had known cold two years earlier, gave this answer: true available cash, not the bank balance. Every other number in the business flows from it.
What else should I watch alongside it?
Three things, and they take about ten minutes a week.
The timing of your next large receivable. Is it collectible on schedule, or is there a real risk it slips?
Your payables aging. Are vendor balances accumulating toward a catch-up payment that will land in one week?
Your coverage ratio. How many days of operating expenses does current available cash cover? The answer moves the meaning of the same balance enormously.
Who should be producing this number?
Someone who is looking forward rather than backward. Bookkeeping and tax work tell you what already happened, accurately and on a lag. Available cash is a forward calculation, and it changes every few days.
C-Suite Support builds this into a weekly one-page cash report for owner-led businesses across Dallas-Fort Worth, Houston, Austin, and North Texas. One page. Four items. Twenty minutes, on the same morning every week.
Most owners tell us the same thing after about six weeks. It is not that they learn more. It is that they learn it in time to do something about it.
Frequently asked questions
Is available cash the same as working capital?
No. Working capital is current assets minus current liabilities, a balance-sheet measure that includes receivables and inventory. Available cash is only the money you could spend today. A company can hold healthy working capital and still have very little available cash.
Should customer deposits be counted as cash?
They sit in your account, so they appear in the balance, but they are restricted in substance. You are holding money for work you have not yet performed. Treating deposits as available cash is one of the most common ways a project-based business overstates its position.
How often should available cash be calculated?
Weekly at minimum, and before any material commitment. The number moves with every payroll run, collection, and scheduled payment, so a figure calculated three weeks ago is not a current answer.
Call to action
Book a free 30-minute cash flow call with C-Suite Support and we will calculate your true available cash with you, on the call.
About the author
Paul Whitley is the Founder and CEO of C-Suite Support, a Texas-based fractional executive firm that provides fractional CFO, COO, and CMO services to owner-led businesses across Dallas-Fort Worth, Houston, Austin, and North Texas. Paul Whitley has spent more than thirty years as a CFO, COO, CMO, and general manager for companies ranging from $1.5 million to $5 billion in revenue, and has helped raise more than $336 million in public debt, private equity, bank debt, and asset-backed financing. He is the author of Profitable and Broke: What Your Cash Flow Reveals About Your Leadership and the host of CEO Talks with Paul Whitley on the C-Suite Network.
Related reading
The Tuesday Call: Why a Profitable Business Runs Out of Cash. Why a profitable business runs out of cash, and the three numbers that close the gap.
The 13-Week Cash Flow Forecast, Explained. How to build a rolling 13-week cash forecast, and why honest beats accurate.