By Lachlan Bull
One of the most common things business owners say to me is, “We’re profitable, but it never feels like there’s enough cash.” It’s certainly a frustrating position to be in. On paper, the business looks like it’s doing well, but day to day it can feel like you’re constantly watching the bank balance.
The issue usually comes down to one simple misunderstanding: profit and cash are not the same thing.
Profit is what shows up on your profit and loss statement, aka your income minus expenses. Cash flow, on the other hand, is the actual movement of money in and out of your bank account. You can record income, pay tax on it, and still be waiting for customers to pay you. That gap is where many cash flow problems begin.
Late customer payments are a big factor. The work is done, the invoice is sent, and the income is recorded, but until the invoice is paid, it doesn’t help your cash position at all. GST can cause similar pressure, as while GST collected isn’t profit, it often sits in the bank account until BAS is due. If it hasn’t been set aside, the payment can come as a shock.
Stock and other upfront costs also play a role, particularly in growing businesses where cash goes out well before any return comes back in. While interest appears as an expense, the principal portion doesn’t, even though it reduces cash every month. Add growth into the mix, such as more staff, systems and overheads, and suddenly a profitable business can feel very tight.
There are usually warning signs before things become serious. Regularly relying on overdrafts, feeling stressed around BAS or payroll dates, delaying payments to suppliers or the ATO, or making decisions based purely on what’s in the bank today are all indicators that cash flow needs attention.
Cash flow issues are rarely caused by one big mistake. More often, they build up gradually over time. The goal isn’t just to understand where cash is going, but to put systems in place that make it easier to manage, for example; setting aside GST properly, forecasting upcoming commitments, and planning for growth rather than reacting to it.
Profit matters, but cash is what keeps your business running. If your business looks healthy on paper but cash still feels tight, it’s worth digging into the detail sooner rather than later. If you’d like help understanding what’s really happening behind the numbers, get in touch with our team here at Moore Lewis & Partners.
