You look at the P&L and the business is profitable. You look at the bank account and the cash isn't there. Both are accurate. Both describe the same business. And yet they tell two completely different stories.
It's the question every owner asks at some point: why doesn't my profit equal my bank balance?
It's not an accounting mistake. It's how the numbers actually work. Once you see it, you stop being surprised by it.
Why the P&L doesn't tell you about cash
The P&L records revenue when you earn it and expenses when you incur them. It tells you whether the business made a profit over a period. It does not tell you when the money moved in or out.
That gap is bigger than it sounds.
You can invoice a customer in May, book the revenue in May, and watch the profit show up in May. The cash from that invoice might not arrive until July. The P&L doesn't care. It's already counted the sale.
Most owners only ever look at the P&L. The cash story plays out alongside it, in the timing of money in and money out. That timing is what you feel in the bank account.
Where the cash actually goes
The cash that doesn't show up in your bank balance is sitting somewhere. The usual places:
- Stock or inventory you've paid for but haven't sold yet
- Debtors, money customers owe you but haven't paid
- GST, PAYG, and income tax obligations owed against the business
- Capital expenditure, equipment, fit-outs, software you've already outlaid for
- Owner drawings and loan repayments going out of the business each month
Profit on the P&L can be tied up in any of these. None of them spend like cash in the bank.
How the lag plays out in practice
Here's how the timing actually plays out in a typical month.
You make a $100,000 sale in May. Solid month, profit on the P&L. The invoice goes out with 30-day terms.
Your customer is meant to pay in June. In reality, most pay closer to late June or July. Most owners haven't run the analysis on their accounts receivable: the terms say 30 days, the behaviour averages 50 to 60. Common, and rarely surfaced until cash gets tight.
Meanwhile, between sending the invoice and the money landing:
- Your suppliers have 30-day terms with you, and they expect to be paid
- Payroll runs fortnightly, well before that invoice settles
- Last year's company income tax instalment is due in May
- The hire purchase repayment on equipment you bought last year keeps coming out as usual
You're paying everyone else before the cash from May actually lands. That's where profit and cash come apart.
Forecast cash, not just profit
The fix is to look forward at cash the same way you look back at profit.
For some businesses, a 13-week rolling forecast does the job. One quarter of operational visibility, updated weekly, showing money in and money out across receivables, payables, payroll, tax, and debt. You see the next pinch point weeks before it arrives.
Other businesses need a longer horizon. If you're scaling, raising debt, planning capex, or running a longer sales cycle, a 6 to 12 month cash flow forecast gives you the runway to make decisions in time. The right cadence depends on size, complexity, and how far ahead the big calls sit.
Seeing the gap is one thing. Closing it is another. That's where the work shifts from forecasting to advisory: tightening payment terms, sharpening receivables follow-up, renegotiating with suppliers, structuring debt to match the trading cycle. The forecast tells you what's coming. The advisory work changes it.
A starting point
If your numbers say one thing and your bank account says another, you don't need a bigger profit. You need a forward view of your cash, and a plan for closing the gap.
That's the work the forecasting service covers as standard: building the cash model, updating it, and using it to inform the calls you're already making, alongside the broader advisory work that improves the underlying flow.
Start with the forecasting service →
For the companion piece on bringing CFO-grade thinking into the business, see When to hire a CFO.
