Cash vs Profit – Why They’re Not the Same

Welcome to the next article in our Accounting & Tax 101 series — short, plain-English guides to help you understand the numbers that matter.

This time, we’re looking at something that confuses nearly every business owner at some point: why your accounts say one thing, but your bank balance says another.

Profit – the “on paper” number

Profit is what’s left after you add up sales and take away costs.

Think of it as the scorecard: how well your business is doing overall.

• Profit includes sales you’ve invoiced, even if customers haven’t paid yet.

• It also includes bills you’ve received, even if you haven’t paid them yet.

Profit is useful, but it doesn’t always reflect the money you can actually spend.

Cash – the “in the bank” number

Cash is simply the money you can use right now.

• It goes up when customers pay you, or you put in new funds.

• It goes down when you pay suppliers, staff, taxes, or take money out yourself.

Cash is the lifeblood of the business — without it, you can’t pay the bills, no matter how profitable you look on paper.

Why can they be different?

Here are some common reasons:

• Slow customers: You’ve made the sale, so profit goes up — but until they pay, your cash doesn’t.

• Stock and supplies: Buying in bulk hits your cash immediately, but the cost only reduces profit as you sell it.

• Loans and repayments: Borrowing boosts your cash, but it doesn’t show as profit. Paying loans back reduces cash, but doesn’t reduce profit.

• Timing of bills: You may have profit in the accounts, but if a big tax bill or supplier payment is due, cash can suddenly feel tight.
  

The big picture

• Profit tells you if the business model works.

• Cash tells you if the business can survive day to day.

Both are important, but in different ways.

Our advice

Don’t panic if profit and cash don’t match — they’re not supposed to. What matters is understanding the difference.

Here at Accounts Action, we don’t just hand over a profit figure. We show you cash flow charts alongside your accounts, so you can see exactly how money is moving in and out of the business. It makes the numbers much clearer — and far less stressful.

This article is part of our Accounting & Tax 101 series — short guides to help you understand your accounts without the jargon.