Profit isn't cash. Here's why your bank balance disagrees with your accounts.
Your accounts say you made money, but your bank account says otherwise. Here's the gap between profit and cash, explained without jargon.
It's one of the most common questions we get: "My accounts say I made a profit, so where's the money?" It's a fair question, and the answer usually comes down to timing.
Profit counts what you've earned, not what you've been paid
When you send an invoice, it counts as income in your accounts straight away, even if the customer won't pay for 60 days. Your profit goes up, but your bank balance doesn't move until they pay.
Four common reasons the numbers don't match
- Customers haven't paid yet. Money you're owed shows as profit, not cash.
- You've bought stock. Cash has gone out, but it only becomes a cost when you sell it.
- You've bought equipment. A new laptop or van comes off your profit over several years, but the cash leaves on day one.
- Loan repayments and dividends. These take cash out but don't reduce your profit.
The quick fix: ask for a simple cash-flow forecast alongside your profit figure. It shows what's coming in and going out over the next few months, so there are no surprises.
If your numbers regularly disagree and you're not sure why, that's exactly what a monthly management accounts call is for.
This article is general information, not advice for your specific situation. Rules and thresholds change, so check GOV.UK or speak to us before acting on it.