The frustrating difference between profit and cashflow (that catches almost every business owner)

One of my favourite moments with a client is when they realise they're not actually bad with money.

They're just looking at the wrong number.

Because this comes up all the time: Someone has had their year-end accounts finished, they've made a decent profit, and then they look at their bank account and think...

"Hang on... where is it?"

and not to mention... "How do I now pay the tax owing on that?"

Where's this profit everyone keeps talking about?

It feels a bit like someone telling you that you're rich because your avocado tree is absolutely loaded this season... while you're standing in the kitchen wondering whether you've actually got enough cash to buy tomorrow's loaf of bread.

The avocados are there.

They're real.

But unless you've picked them, sold them, and someone has actually paid you, they don't help much when it's time to tap your card at New World.

That's the difference between profit and cashflow.

Profit tells you what you've grown.

Cashflow tells you what's actually in your wallet.

They're related, but they're definitely not twins.

Let's say you send a customer a sales invoice for $15,000 today.

From an accounting and tax point of view, you've earned that income. Your Profit & Loss report starts smiling at you immediately.

Your bank account, however, doesn't give a s%!t.

It'll keep wearing the same grumpy face until your customer actually pays the invoice.

Meanwhile, business and life carries on.

Wages need paying. GST is due. Rent comes out. Xero helps itself to another subscription. ACC sends a letter with suspiciously good timing. Then someone in the office announces they've accidentally finished the coffee.

Again.

Suddenly you're wondering whether the business is actually doing okay??

It probably is.

The cash just hasn't caught up yet.

The tricky thing is that cash can disappear for reasons that have nothing to do with profit:

You might buy a new vehicle. Pay off part of a loan. Put money aside for tax. Replace a laptop that's finally given up after years of loyal service (ahem, not speaking from personal experience 👀). None of those things necessarily show up on your Profit & Loss in the way you'd expect, but every single one makes your bank balance smaller.

Which is why so many business owners tell me,

"We seem to be making good money, but it never feels like we've actually got any."

They're not imagining it.

Profit measures how successful your business has been over a period of time.

Cashflow measures whether you've actually got money available today.

Those are two completely different questions.

It's also why you'll hear stories about profitable businesses that suddenly get into trouble. Not because they weren't making money, but because they ran out of cash before it arrived.

That's a timing problem, not necessarily a business problem.

Once you understand that, the questions you ask start to change.

Instead of asking, "How much profit did we make?" you start asking things like:

• Can we afford to hire someone now, or should we wait another couple of months?

• How will paying provisional tax affect the next quarter?

• Which customers are taking forever to pay?

• How much cash do we actually need sitting in the business so I stop waking up at 3am wondering if everything's okay?

Those are the conversations that make running a business feel calmer.

Because the goal isn't just to build a profitable business, it's to build one that lets you sleep at night.

That's why we spend so much time talking about cashflow with our clients. Profit tells us whether the business is healthy. Cashflow tells us whether it's breathing comfortably.

And if your accountant has ever told you you've had a great year while your bank account looked like it had missed the memo, hopefully you now know they weren't contradicting each other.

They were just telling two different parts of the same story.

If your business feels busy, profitable, and somehow still a bit financially stressful, don't just assume that's "how business is". Sometimes a single conversation can bring a whole lot of clarity. If you'd like to have that conversation, we're here when you're ready 👉 book in a call.