Advisory
Cash vs. Profit: Why Your Bank Account Can Lie
A healthy bank balance feels reassuring — but it does not always mean your business is profitable. Cash and profit measure different things, and conflating them leads to poor decisions.
Profit is accrual-based
Profit reflects income earned and costs incurred in a period, regardless of when cash moves. You may show profit while cash is tight — for example, if customers pay late or you invest in inventory.
Cash reflects timing
Cash flow tracks money in and out. A large upfront payment may inflate your balance temporarily, masking underlying margin pressure or rising costs.
What to monitor
- Monthly profit and loss with consistent accounting policies
- Cash flow forecast for at least 13 weeks
- Debtor days and stock levels
- Tax and dividend timing
Practical takeaway
Review both metrics monthly with someone who can explain the story behind the numbers. That is where confident decisions are made.