Your Business Is Profitable. So Why Is There No Money in the Bank?

01

Profit and cash answer different questions

Profit tells you whether the income earned during a period was higher than the costs recognised for that period. It does not tell you whether the customer has paid, whether an old supplier bill was cleared, or whether a loan instalment left the bank.

The bank balance records timing. A sale can increase profit today and produce cash sixty days later. An equipment purchase can reduce cash today while affecting profit slowly through depreciation. Both sets of numbers can be correct at the same time.

02

Receivables are often the first place to look

If revenue grows faster than collections, the business may report a better profit while funding more customer credit. The cash has not disappeared. It is sitting in unpaid invoices.

Review receivables by customer, due date and promised payment date. A general ageing report is useful, but the largest ten balances usually explain most of the cash pressure. Each material balance should have an owner and a realistic collection date.

• Compare revenue growth with the growth in receivables
• Track actual collection days alongside contractual credit terms
• Separate disputed invoices from routine delays
• Review customer concentration before assuming every invoice will arrive on time

03

Growth can consume cash before it produces cash

A growing business may hire people, pay vendors, buy inventory or spend on customer acquisition before the related receipts arrive. This creates a working-capital gap. The faster the business grows, the larger the gap can become.

This is why growth needs a cash plan. More sales are valuable only if the margin is sound, collections are realistic and the business can finance the period between delivery and payment.

04

Some cash outflows do not appear as current expenses

Loan principal, capital expenditure, security deposits and owner drawings can reduce the bank balance without reducing current-period profit in the same way. Tax payments can also be lumpy because they settle a liability recorded earlier.

When management looks only at the P&L, these movements are easy to miss. A simple profit-to-cash bridge makes them visible and prevents the finance discussion from ending with the wrong conclusion.

• Increase in receivables or inventory
• Decrease in payables or other operating liabilities
• Capital expenditure and deposits
• Loan principal repayments
• Income tax, GST or other statutory payments
• Dividends, drawings or transfers to owners

05

What to review every month

Start with closing cash, then review the profit-to-cash bridge, receivable ageing, committed payments and the next thirteen weeks. The aim is not to create a complicated treasury model. It is to understand when cash could become tight and which action can improve the position.

A monthly close and cash view should answer this question before it becomes urgent. DebitMark includes this connection between profit, working capital and cash in reporting scopes where it is relevant.