Why Do We Show a Profit but Never Have Enough Cash?

You're not crazy—and your accountant isn't necessarily wrong. Profit and cash are two different lenses on the same business.

Why Profit and Cash Don't Match

Profit is an accounting result.

Cash is money in the bank.

They drift apart because of things like:

·        Timing of invoices and collections – You've "earned" the revenue on paper, but the customer hasn't paid yet.

·        Prepaid or deferred revenue – Customers pay early, but you can't recognize it as revenue yet (or vice versa).

·        Inventory and capital purchases – You spend cash now, but the cost hits the P&L over time (i.e. inventory is expensed when sold, assets like equipment are depreciated over time).

·        Loan principal payments – They never appear on your P&L, but they definitely leave your bank account.

·        Non-cash charges – Depreciation and amortization reduce profit but don't reduce cash in the period, which is another reason the two don't match.

Signs This Is Happening to You

·        Revenue is growing, but your bank balance keeps shrinking.

·        You had a "great year" on paper, yet you feel more squeezed than ever.

·        You're relying on a line of credit to make payroll.

What to Put in Place

·        Monthly cash flow view – At minimum, a 13-week cash forecast that shows money in, money out, and ending balance.

·        Track key cash KPIs – Monitor operating cash flow and months of cash runway, not just the bank balance, so you can see trends and plan ahead.

·        Tighter AR and AP discipline – Invoice quickly, set clear terms, and follow up consistently.

·        Separate buckets for cash – Keep operating cash, taxes, and owner distributions in separate "buckets" so you don't accidentally drain working capital.

·        Focus on your cash conversion cycle – Work with your accountant or fractional CFO to understand how long it takes for a dollar spent to come back as collected revenue—and how to shorten that cycle.

Conversation Starter With Your Finance Team

"What are the top three changes we can make to keep more cash in the business?"