It's one of the most confusing experiences in business. Your accountant says you made money. Your bank account says otherwise. Both can be true at the same time, and understanding why is the difference between a stressful year and a calm one.
Profit is an opinion. Cash is a fact.
Profit is an accounting measure. It depends on when revenue and expenses are recorded, which is often not when the money actually moves. Sell something today and invoice it on net-30 terms, and you've booked a profit you won't see in cash for a month. Cash, by contrast, is simply what's in the account. You can argue about profit. You can't argue with a balance.
Where the cash actually goes
The reason profitable businesses run short is that a lot of cash leaves through doors the P&L doesn't fully show:
- Accounts receivable. Money you've earned but customers haven't paid yet.
- Inventory. Cash converted into stock sitting on a shelf.
- Loan principal. Repayments reduce cash but aren't an expense on the P&L.
- Taxes and owner draws. Real outflows that don't show up as operating costs.
- Equipment and capital purchases. Often spread over years on paper, paid in full today.
Any one of these can pull your bank balance well below your profit. Several at once, in a growing business, is exactly how a good year turns into a cash scare.
The number to actually watch
The antidote is a simple, forward-looking view of cash: how many weeks or months of runway you have at the current burn, and a rolling forecast of money in versus money out over the next 8 to 13 weeks. It doesn't need to be elaborate. It needs to exist, and it needs to be looked at before a crunch, not during one. Most owners only build this after their first scare. The ones who sleep well build it before.
Profit tells you whether the business model works. Cash tells you whether you'll survive long enough to prove it. You need both on the table, side by side, every month.
An honest look at your cash position
Your first Insight Report is free: one month of your numbers explained in plain English, including where your cash actually stands and what your books can't show yet.
See what your numbers sayComplimentary, no obligation. Read-only access, we never touch your books.