It is one of the most common frustrations we hear: the profit and loss says the business made money, yet the bank account is tight and paying suppliers on time feels like a juggling act. Nothing is necessarily wrong. Profit and cash simply measure different things.
Profit is an opinion, cash is a fact
Profit records income when you earn it and expenses when you incur them. Cash only moves when money actually lands in or leaves your account. The difference between the two is timing, and timing is where most cash squeezes come from.
Where the gap usually comes from
- Customers paying late. A sale counts towards profit the day you invoice it, but the cash might not arrive for 30, 60 or 90 days.
- Stock sitting on shelves. Money spent on inventory is gone from the bank long before it shows up as a cost of sale.
- Loan repayments. The principal portion of a loan repayment reduces cash but never appears as an expense in the profit and loss.
- Tax and GST timing. GST collected is not your money, and tax bills often arrive in lumps months after the profit was made.
- Growth itself. Taking on more work usually means paying wages and materials before the customer pays you.
A growing, profitable business can run out of cash faster than a stagnant one, because growth soaks up working capital.
What you can do about it
Start by looking at your debtors list each week and chasing anything overdue early and politely. Review payment terms with customers and, where it makes sense, ask for deposits on larger jobs. Keep an eye on how much stock you are holding compared with what you actually sell each month.
Most importantly, build a simple cash flow forecast so you can see the tight weeks coming. It does not need to be complicated. Even a rough view of the next three months turns surprises into decisions.
The takeaway
Profit tells you whether the business model works. Cash tells you whether the business can keep the lights on while it does. You need to watch both, and the habits that protect your cash are usually small, regular and very achievable.
Free template: put this into practice with our 13-week cash flow forecast template. Download PDF · Download Excel
