Use the profit figures to test the hire and the cash forecast to time it
This is for an established UK owner-managed company weighing an employee or another recurring commitment. Recent management accounts show margin and whether the extra capacity makes commercial sense. They do not show when each customer will pay. Build a 13-week cash forecast alongside the longer-term profit and cash outlook. The initial forecast should include at least the first payroll cycles and be extended if a material tax or debt payment falls just beyond it.
Build a weekly baseline from the bank and the ledgers
Start with reconciled bank balances and distinguish cash available to spend from ring-fenced balances and unconfirmed borrowing. List customer receipts by realistic collection week, separating agreed invoice dates from assumptions about new work. Map supplier payments, existing payroll, tax, debt repayments and owner drawings or dividends where relevant. Use each actual payment schedule rather than spreading a quarterly or annual bill evenly.
Calculate opening cash plus receipts less payments for each week. Carry closing cash into the next week and mark the lowest balance. If a payroll payment and a large receipt fall in the same week, check the daily sequence as well.
Add the full cost of the hire and date each payment
Include recruitment, equipment, net wages, amounts payable to HMRC, and pension payments where applicable. PAYE deductions and employee National Insurance generally come out of gross pay, while employer National Insurance is an additional cost where due. If you forecast net pay on payday, put the relevant deductions and employer liability in the HMRC payment week. Do not then add gross pay as a second cash outflow. Use the pension provider’s payment schedule and include employer contributions and any deductions remitted to the scheme.
Check actual payroll liabilities and any Employment Allowance eligibility before reducing the forecast. Use your own PAYE and Corporation Tax payment dates, including instalments where applicable. Do not assume any eventual reduction in taxable profit makes cash available in the payroll week.
Hypothetical example: a late invoice changes the decision
Assume an established company’s lowest weekly closing cash without a hire is £31,000 in week seven. By then the proposed hire adds £8,000 of cumulative payments, including equipment and the payroll costs actually due in those weeks. All other assumptions are unchanged. Cash in week seven falls to £23,000. If a £15,000 customer receipt expected by week seven slips beyond it, cash falls to £8,000. If the company has set a £20,000 operating buffer, that scenario leaves it £12,000 below the buffer.
These figures are hypothetical, and the buffer is a business choice rather than a statutory requirement. Run all 13 weeks: a later HMRC payment or a second month of wages may shift the low point. Compare a later start date or firmer customer collection arrangements before making an offer.
Make the forecast part of the monthly reporting cycle
Update the forecast with actual bank movements each week. Ask who owns overdue collections and which payments are committed. With each set of management accounts, compare forecast and actual cash, and distinguish a late receipt from a lost sale or a recurring cost overrun. Revisit the hire when the downside case can support payroll and tax without relying on unconfirmed finance. If cash is already tight or borrowing terms are close to their limits, seek bespoke advice before taking on the commitment.
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Official sources and further reading
These primary sources support the framework above. Check the current version before acting because tax law and HMRC guidance can change.