Profit is not the same as cash, so what should you ask your numbers each month
Three questions we think every owner should put to their finance function monthly. The answers tell you whether the hire, the purchase or the price rise is affordable now, rather than in hindsight.
Published 26 September 2026
6 min read
Gavin Jardine, Director, MIAB
Profit is not the same as cash, and the gap between the two is where most owner-managed businesses get caught out. A profitable month can end with less money in the bank than it started with. That is not a fault in the accounts. It is what happens when revenue is recorded as it is earned and cash moves when someone actually pays.
My view is that the profit and loss account answers a question most owners are not asking in the moment. You want to know whether you can take on the hire, fund the stock order, or hold your nerve on a price rise. Those are cash questions.
So here are the three I would put to your numbers every month, the evidence behind each answer, and what to do when the answer is uncomfortable.
Question one: how much cash is genuinely uncommitted
The bank balance is a headline, and it flatters. Ask instead what is left once the money already spoken for is taken out.
Work through it in order. Start with the bank balance across all accounts. Take off the VAT you have collected and will hand over at the next return. Take off payroll and pension contributions for the coming month. Take off the corporation tax accruing on this year’s profit, even though it is months away. Take off supplier bills already approved and sitting in the ledger.
What remains is the number that decides things. I have sat with owners who believed they had a comfortable balance and found, once the VAT and payroll came out, that the comfortable balance was a fortnight of breathing room.
Two points worth knowing. Standard VAT accounting means you pay HMRC based on invoices raised, whether or not your customer has paid you. If your VAT taxable turnover is £1.35 million or less, the Cash Accounting Scheme lets you pay VAT when the customer pays and reclaim when you pay the supplier, which shifts the timing in your favour. Details are on GOV.UK.
The practical takeaway: keep a standing list of committed cash and update it monthly, not when the payment lands.
Question two: who owes you, and since when
Profit records the sale on the day you invoice. Cash arrives when the customer decides to pay, and plenty of UK firms have watched payment terms stretch over the past two years.
So the question is not what your debtors total. It is how that total splits by age. Current, thirty days over, sixty days over, ninety days and beyond. A debtor book that looks healthy in total can be one old invoice away from a write-off.
Then ask the harder version of the same question: have you invoiced everything you have delivered? Reconciling a sales ledger against delivery records during a first bookkeeping clean-up is how we found £20,000 of goods supplied by an owner-managed trading business and never invoiced. Nobody had stolen anything. The invoice simply never got raised, and the profit and loss account had no way of telling anyone.
That business now raises invoices as part of the month-end routine rather than when somebody remembers.
The practical takeaway: look at an aged debtors report every month with the oldest balances at the top, and chase in that order. If nobody in the business owns that list by name, it will not get chased.
A profitable month can end with less money in the bank than it started with. That is not an error in the accounts. It is the ordinary gap between earning and being paid.
Question three: what does the next ninety days look like
The first two questions are about today. This one decides whether you can commit to anything.
A thirteen-week view is enough for most owner-managed businesses. Take the cash you have, add what is realistically collectable each week based on the actual terms your customers keep rather than the terms on your invoice, then subtract payroll, VAT, rent, loan repayments and the supplier payments you have already agreed.
Loan repayments are the one people forget. Only the interest appears in your profit figure. The capital leaves the bank in full and never touches the profit and loss account at all. The same applies in reverse to depreciation, which reduces profit without a penny moving.
Then put the decision against that projection. A hire costs salary, employer National Insurance, pension and the recruitment before any of it. A large equipment purchase takes the cash out now and returns it to the accounts slowly over years. A new contract with ninety-day terms can be the most profitable work you have ever won and still leave you short in week six.
The practical takeaway: build the projection before you commit, not after.
Why the answers usually arrive too late
Most owners I meet are not unwilling to ask these questions. They cannot get an answer quickly enough for it to be worth asking.
Accounts filed nine months after year end tell you what happened. They cannot tell you whether the hire you made in March was affordable in March. Between the two sits the bookkeeping, and if the bank is unreconciled, supplier bills are sitting in a folder and the sales ledger has not been checked against what was delivered, then nothing built on top of it is worth reading.
That is why we treat the records as the product rather than the admin before the product. Reports go out on the agreed date each month, provided the information is with us, so the figures are in front of an owner before the decision rather than after it. It is a plain promise and an unglamorous one, but it is the thing that makes the three questions answerable.
If your management information arrives whenever it arrives, the questions above are academic. Fix the timetable first.
Common questions
Can a business be profitable and still run out of money?
Yes, and it happens regularly. Profit records a sale when you invoice it, while cash arrives when the customer pays. If your customers take ninety days and your payroll runs monthly, you can post good profit for three months and still be short of cash every one of them. Timing is what decides solvency.
Why does my loan repayment not show in my profit figure?
Only the interest on a loan is treated as an expense in the profit and loss account. The capital repayment is a reduction of a liability, so it leaves your bank account without appearing in your profit. Depreciation works the other way, reducing profit without any money moving. Both distort the picture if you read profit as cash.
How often should I look at a cash projection?
Monthly as a routine, and again before any commitment that changes your cost base. A rolling thirteen-week view is enough for most owner-managed businesses. Update it with what your customers actually pay rather than the terms printed on the invoice, and the projection becomes something you can act on.
Would the VAT Cash Accounting Scheme help my cash position?
It can, if your VAT taxable turnover is £1.35 million or less. Under the scheme you pay VAT to HMRC when your customer pays you and reclaim it when you pay your supplier, rather than on invoice dates. That removes the problem of funding VAT on sales nobody has paid for yet. The eligibility rules are on GOV.UK.
What records do I need before these questions can be answered?
Bank accounts reconciled to date, supplier bills entered rather than piled up, and a sales ledger checked against what you have actually delivered. Without those three, any cash report is guesswork dressed as a number. Getting them right is the first month of our work with a new client.
Where we stand
Profit is not the same as cash, and the three questions that close that gap are simple enough to ask on the same day every month. What is uncommitted, who owes you and since when, and what the next ninety days look like once payroll, VAT and loan capital come out.
The questions are easy. Getting answers you can rely on depends entirely on whether the bookkeeping underneath them is complete and current. That is the part most businesses underestimate.
If you are asking these questions and getting answers too late to use, or getting no answer at all, that is the sort of thing we spend our time fixing. Our first ninety days are built around exactly this: clean records, then routines, then monthly figures you can decide on.