Cash Position vs. Bank Balance: What is the Difference?

Do you know what we see with clients? Business owners often think that the bank balance matters. They even use it to make decisions!

Sometimes, business owners do not realize their bank balance is NOT their cash position.

That’s right – logging into your bank app and finding out what it says is a waste of time!!

What is the difference between your cash position and your bank balance?

The Key Difference

Bank Balance: This is the number your bank shows you when you log in. It includes everything in your account, whether it is genuinely available to spend.

Cash Position: This is your honest, spendable cash after considering outstanding checks, pending payments, and obligations like payroll or supplier invoices. Unfortunately, the bank app won’t show it, but it is a real number!

A Cautionary Tale: The Overdraft Oops

Meet Lisa. Lisa owns a boutique marketing agency and just landed a $20k project. Her client pays the full amount upfront (woohoo!), and her bank balance reflects the windfall.

Feeling flush, Lisa upgraded her office furniture and threw a team celebration, spending $8k. But what did she forget?

She had $12k in pending payments (vendor invoices, payroll, rent) that had not cleared yet.

Her actual cash position was only $8k, not $20k.

Not to mention that the cost to deliver the $20k project is forecasted at ~$14k. Now, she must dig up cash to fund the payroll overhead and other expenses to deliver on her commitments.

The bank balance misled Lisa, and now we are sitting in an overdraft, struggling to provide value to the client because we can’t fund the effort required.

So quickly, windfall can turn into stress?

How to Stay on Top of It

Get a CFO!

A CFO (Chief Financial Officer) can be a game-changer when it comes to managing your cash position compared to your bank balance.

Lisa deserves more big wins and more windfalls. She wants to provide her clients with great work and continue building her business.

A CFO will be critical to earning that revenue and making a profit.

1. Cash Flow Forecasting & Planning

A CFO ensures you know your actual cash position by forecasting inflows and outflows. They build cash flow models to predict when money is coming in and what is going out so you don’t get blindsided by a big payment.

Lisa would have been aware of her pending payments and the cost of delivering the work. She could have held off on the big spend or done it with a plan instead of stress.

2. Manage Working Capital

CFOs track pending payments, expected revenue, and expenses. They also help secure credit lines as a safety net.

If Lisa felt that a team celebration was the momentum needed to keep selling big projects, a credit line to fund it could have allowed her to fund the spending without the sleepless nights.

3. Optimizing Payment Strategies

A CFO can negotiate better payment terms with vendors, ensuring you do not pay suppliers before your clients pay you. They can also strategically time payments to keep more cash available when you need it.

It’s awesome that Lisa got paid upfront by a client—that is a great optimization and financial strategy.

4. Implementing Financial Controls

They implemented systems to prevent impulse spending (like Lisa’s office splurge!).

For example:
Using the data from your cash forecasts to time a spend or evaluate needs.

5. Maximizing Profitability & Growth

A CFO helps you use cash efficiently, whether investing in growth, paying down debt, or ensuring a steady cushion.

Lisa isn’t likely enjoying that new furniture! And that’s a shame. She is also probably regretting the celebration. As a leader, this energy isn’t helping the team she wanted to spoil and celebrate. Not only are the significant expenditures causing anxiety because of the cash position but ironically, there’s no return on the investment either!

With a CFO, Lisa could focus on making money and have the confidence to use it wisely. Next time she spends time celebrating or creating a better work environment, it will be an investment she can enjoy and be confident in.

The Bottom Line

A CFO transforms financial chaos into clarity by helping you separate what is available from your bank account (but already spoken for or soon needed). The result? Fewer surprises, better financial decisions, and a healthier business.