Cash is running out next month: what do you do first?

It usually shows up on an ordinary weekday. The founder opens the bank app, does the arithmetic against payroll at the end of the month, and realises the number doesn't work. A large customer hasn't paid. A tax payment went out that nobody had planned for. Or the burn crept up over three months and nobody noticed because the balance still looked large.

The instinct is to act immediately and dramatically: freeze everything, cut people, call every investor. Some of that may turn out to be right. Most founders do it in the wrong order, and the wrong order makes things worse.

What follows is the order that works. It assumes a company with some revenue, a team on payroll and investors or shareholders it can talk to, which covers most founders who find themselves here.

Hour one: find out exactly how short you are

You can't make good decisions about a gap you haven't measured. And the number in your head is almost always wrong, usually in both directions at once: some receipts you're counting on won't arrive, and some payments you're worried about can move.

1. 01Get today's balance across every account: bank accounts, the payment gateway, any wallets or cards. That's your real starting point.
2. 02List every receipt you expect in the next eight weeks, customer by customer, in the week you realistically expect it. Mark each one as certain, likely or hopeful.
3. 03List every payment due in the same eight weeks, by week: salaries, PF, ESIC, TDS, GST, rent, vendors, software, anything committed.
4. 04Work out the closing balance each week using only the certain receipts. Then again with the likely ones.
5. 05Circle the worst week. That's the size of your problem and its deadline.

This takes a few hours, not days, and it's the most valuable few hours of the whole exercise. Often the gap turns out to be one bad week rather than a bad month, which is a very different problem. Sometimes it turns out to be bigger than feared, which is better to know now.

Put payments in order

Not all payments are equal, and treating them as if they are leads to the worst outcomes. A useful ordering:

• ·First, salaries. Wage payment deadlines are set by law under the Code on Wages, and missing payroll damages trust inside the company faster than anything else. Delaying salaries should be the very last resort, and never done quietly.
• ·Also first, statutory dues deducted from other people's money. TDS deducted from salaries and vendors, and the employee share of PF, belong to someone else and have to be deposited on time. Late deposit brings interest and penalties, and non-deposit can bring far more serious consequences.
• ·Then GST and the employer's own statutory contributions, where interest and penalties accrue quickly and the liability doesn't go away.
• ·Then suppliers the business can't operate without: hosting, critical inventory, delivery partners.
• ·Then everything that can be talked about: rent, software subscriptions, professional fees, non-critical vendors.
• ·Last, anything discretionary, which should stop today: new marketing spend, travel, events, tools nobody is using, hires not yet started.

Stopping discretionary spend is easy and worth doing immediately. It usually won't close the gap on its own, but it stops the gap growing while you work on the rest.

Bring cash in faster

The fastest money in most businesses is money already owed. Founders often spend days on cost cuts before making the five phone calls that would bring in more cash, sooner.

• ·Call the finance contact at each of your largest debtors personally. Not an automated reminder, a call. Ask when payment is scheduled and what's needed to release it. Often it's a purchase order number, a portal upload or a signature.
• ·Invoice everything that's been delivered but not billed. Milestones completed, change requests, usage overages. It's common to find a week's worth of unbilled revenue.
• ·Offer an early payment discount on large invoices, but price it honestly. A 2% discount for paying 30 days early is expensive, roughly 25% a year, and may still be the right trade for one tight month.
• ·Ask customers with renewals coming up whether they'd pay annually in advance in exchange for a modest discount.
• ·Check for refunds you're owed: GST refunds on exports, excess TDS, deposits from vendors you no longer use. These are slow, but start the process now.
• ·If you're a registered micro or small enterprise and a large buyer is past the legal payment deadline, the MSME rules give you a legitimate lever. Use it politely.

Borrowing isn't covered here. It's a separate decision with its own risks, and one to take with proper advice rather than in the middle of a week like this.

Defer honestly

Many payments can move if you ask early and explain plainly. A landlord would usually rather have rent two weeks late with notice than chase it. A software vendor may move an annual renewal to monthly billing. A professional firm may accept a payment plan. The key is asking before the due date, with a specific date you can actually meet.

What you shouldn't do is simply not pay and hope. Suppliers talk, and a reputation for paying late without warning costs far more over a year than the cash it saves in a week.

Cut in the right order

This is where founders most often make an expensive mistake. Cutting costs feels like the most decisive action, and some cuts are necessary. But many cuts don't save cash this month. Some cost cash this month.

Letting people go usually means paying notice period or pay in lieu, any earned leave encashment, and the full and final settlement, often within days. Gratuity becomes payable for anyone with enough service. A reduction in the team can therefore make next month's cash position worse before it makes the following quarter better. That doesn't mean it's the wrong decision. It means it has to be modelled in the eight-week view before it's announced, not after.

The same applies to contracts with notice periods or minimum terms. Cancelling an office lease or a software contract may save nothing for three months. Some leases also carry lock-in periods where leaving early means paying the remaining rent anyway, so read the agreement before assuming a saving.

So sort cuts by when they actually release cash. Discretionary spend stops now. Contract savings land when the notice runs out. People decisions, if they're necessary, should be made once, carefully, with the cash impact understood, rather than in rounds that destroy morale each time.

An illustrative example

A software company with 30 people has ₹38 lakh in the bank on the 6th of the month. Payroll of ₹31 lakh goes out on the last working day. PF, ESIC and TDS of about ₹6 lakh are due in the middle of the month, and GST of ₹4 lakh on the 20th. Vendors and rent come to around ₹9 lakh across the month. Certain receipts total ₹11 lakh. The figures are invented.

On certain receipts alone, the month ends about ₹1 lakh short, and that's before anything goes wrong. Two more invoices totalling ₹16 lakh are marked likely, both with one customer who pays late.

The founder calls that customer's finance team on day one and learns the invoices are stuck waiting for a purchase order reference. It's sent the same afternoon, and ₹16 lakh is confirmed for the 24th. Discretionary spend of about ₹2 lakh stops. A ₹3 lakh annual software renewal moves to monthly billing. The landlord agrees to take rent on the 5th rather than the 1st. The month now ends around ₹20 lakh positive, which isn't comfortable but is safe.

Nobody was let go, and no investor had to be asked for anything. But the exercise also showed that burn is ₹12 lakh a month higher than the founder believed, and runway is seven months, not eleven. That's the conversation that happens next.

Talk to investors before you have to

If the eight-week view shows a gap that collections, deferrals and discretionary cuts can't close, your investors need to hear about it now, not the week before payroll.

Bring them the eight-week cash view, what you've already done, the size and timing of the remaining gap, and the options as you see them, including what you would cut. Investors respond far better to a founder who arrives with a clear number and a plan than to one who arrives with a request and a feeling. Existing investors are also the most realistic source of bridge funding, but even a quick decision from them takes time, which is exactly why the conversation has to start early.

Talk to the team, carefully

Teams usually sense cash trouble before they're told. Silence feeds rumours, and rumours make good people start looking elsewhere at the worst possible moment. At the same time, sharing an unmeasured panic helps nobody.

Once you have the number and a plan, tell your leadership team plainly. What decisions are made, what's still open, and what they can say to their teams. Keep promises about payroll only if you're certain you can keep them.

What not to do in a week like this

• ·Don't stop depositing TDS or the employee share of PF to fund payroll. It solves this month by creating a much bigger problem, and it's other people's money.
• ·Don't promise suppliers dates you can't meet. One missed promise costs more goodwill than an honest request for time.
• ·Don't announce cuts before you've modelled what they cost in the first month.
• ·Don't offer deep discounts to every customer for early payment. Pick the few invoices that move the worst week.
• ·Don't sign anything with punitive terms because the deadline feels close. Take a day and get advice.
• ·Don't keep it from your co-founders or your board. The worst version of this week is the one handled alone.

It's also worth resisting the urge to rebuild the whole plan in the same week. The job right now is to get safely to the end of the eight-week view. The strategic questions about burn, pricing and the next raise matter enormously, but they're better answered in the calmer fortnight that follows, with the cash position stable and the real numbers in front of you.

Once you're through it

A month like this is usually a symptom rather than an accident. The underlying cause is almost always one of three things: burn that grew without anyone tracking it, receivables that stretched without anyone chasing them, or a plan that assumed revenue would arrive faster than it did.

The fix is a simple weekly habit. A rolling 13-week cash forecast, updated every Monday, with a minimum cash line that triggers action well before the balance gets anywhere near payroll. Paired with a monthly look at burn and runway, it turns this kind of week from an emergency into a line item that was seen coming two months earlier.

Who wrote this

Shafneed is the founder of Simplify, a finance clarity and investment readiness practice working with founders across India. He writes about the questions founders bring before a decision, not after it.