Few things surprise owners more than a healthy profit figure sitting next to an empty bank account. The explanation is simple: profit and cash are measured differently.
Where the gap comes from
- Credit sales. You record revenue when you deliver, but the cash arrives only when the customer pays.
- Stock. Money spent on inventory leaves the bank immediately but only becomes an expense when the goods are sold.
- Equipment and loan repayments. Buying assets or repaying a loan uses cash, while the profit statement shows only depreciation or interest.
- Tax and other timing differences. Large payments often fall in different months from the income that caused them.
Three habits that protect cash
- Forecast weekly. A rolling 13-week cash forecast shows shortfalls before they arrive.
- Manage the cycle. Track how many days customers take to pay, how long stock sits, and how long you take to pay suppliers. Shortening the first two and sensibly managing the third releases cash.
- Follow up early. Send invoices promptly, agree clear payment terms, and chase overdue accounts before they age.
The takeaway
Profit tells you whether the business model works. Cash tells you whether you can survive this month. Good financial management watches both. If you would like help building a cash forecast or tightening collections, our team can set up a simple routine that fits your business.
This article is general information, not tax, legal or financial advice. Rules change and every business is different, so speak to a qualified professional about your situation.
