Why a healthy profit can still leave you short on cash
It is one of the most frustrating moments in running a business: your reports show you made a great profit this month.. but when you look at your bank account the cash just isn’t there.
It is an incredibly common trap. It happens because profit and cash in the bank are two completely different things. Confusing the two is usually why businesses face sudden, stressful cash flow crunches.
The Reality Behind the Numbers
Profit is a look at the big picture on paper. It is your total sales minus your expenses for a specific period. Crucially, it includes invoices you have sent out but haven’t actually been paid for yet.
Cash Flow is the real time movement of money. It is the actual dollars landing in your account and flowing back out to cover bills, payroll and super.
You can be highly profitable on paper while also scrambling to cover wages next Tuesday. If your money is tied up in unpaid invoices or upfront materials, that "paper profit" won't help you meet your immediate deadlines.
How to Spot the Gaps Before They Hurt
Waiting for your bank balance to drop before you react puts you on the defensive. To stay ahead of shortages, look for three key triggers:
The Lump Sum Traps: Don't just look at next weeks bills. Look ahead at the next 30 to 60 days. Factor in the bigger expenses that don’t happen every week - like quarterly BAS, superannuation contributions and insurance renewals.
Slow Paying Clients: Keep a close eye on how long it actually takes for customers to pay you. If your terms are 14 days but clients consistently take 30 or 45 days, a cash gap is inevitable as you take on more work.
A Simple Forward View: You don't need a massively complex system, but you do need a clear way to project your expected cash coming in against your guaranteed outgoings. This gives you a clear runway so you can see a tight month coming from several weeks away, rather than finding out the day a bill is due.
Get Total Clarity
Knowing your true financial position takes the guesswork out of funding new jobs or taking on staff. If you are tired of wondering where your hard earned cash actually went at the end of the month, getting the right tracking systems in place changes everything.
Want to get a proper handle on your cash flow before EOFY? Get in touch with Churchill & Way today to set up your custom cash flow tracker and take control of your numbers.
This information is intended to be general in nature and is not personal financial advice. It does not take into account your objectives, financial situation or needs. Before acting on any information, you should consider the appropriateness of the information provided in relation to your own circumstances.
