Cash is not profit and vice versa

Anna Stubbs • March 13, 2023

The purpose of a business is to make money, and that means you need to know the difference between profit and cash flow.

 

Net profit is what you have left after you deduct all your business expenses from all your revenue. You can improve net profit only by changing the things that affect revenue and expenses.

 

For example, if:

 

  • You renegotiate with your suppliers, you may get stock cheaper, or carry less inventory
  • Your staff engage with customers better, you can learn more about what they do and don’t like – and get more business
  • You can roster staff differently, you may be able to run your business more efficiently.

Cash flow comes from various sources. However, it also covers operating expenses, taxes, equipment purchases, repayments, distribution, and so on.

 

Note that a profitable business does not always have good cash flow. And a business with good cash flow is not always profitable. For example, you can have good cash flow, and loss-making expenses.

 

To work out how fast you can grow your business, look at your projected cash flow. We can advise you on this.

Keeping cash crowned as King

Your business can’t survive without cash.

The following six takeaways are essential for business success:

 

  1. Protect your cash position, by knowing what it is. Build a cash flow statement and always keep it up-to-date. If you foresee a shortfall, start at once to fix it.
  2. Create a cash buffer as an insurance against unexpected difficulties.
  3. Protect your cash position against revenue shocks, by maintaining a balance equivalent to at least two months of operating expenses.
  4. Be realistic with revenue expectations. Take action now if it looks like sales are not going to get you to breakeven.
  5. Credit checking up front will reduce the risk of customer non-payment. Make sure you follow up with clear payment terms agreed in writing. Communicate regularly with customers and automate where possible.
  6. Every pound you spend reduces cash reserves.


The best way to protect your cash is to create a budget for the spend you know you need, and stick to it.

Looking to improve cash flow? Make a time to talk to us. We're here to help.

The basics of business finance: income and expenditure

By Anna Stubbs • November 15, 2025
Understanding the financial management of your small business is a vital skill as a business owner. And it starts with an awareness of two fundamental concepts: income and expenditure. Grasping the difference between what comes in, and what goes out, is crucial for your financial health, making informed business decisions and the overall survival of the company. Let's break down the basics.

Don't end up paying tax on uncollected debtors!

By Anna Stubbs • November 15, 2025
Did you know you still have to pay tax on uncollected debtors? This is because you pay tax on your sales figures irrespective of whether you have collected the cash.  To avoid paying tax on uncollected debt, here are some quick and easy-to-implement debt collection strategies to ensure your hard-earned money is sitting in your bank account (and not in theirs): Agree on your payment terms at the time of sale Get the Terms of Trade signed off in writing before you start the job Include a guarantee in the payment terms Ask for a deposit Invoice as quickly as you can Change your payment terms to 7 days or ‘on delivery’ Send statements with only two columns – current and OVERDUE Schedule overdue reminders and follow up the day after the due date Put someone other than the business owner in charge of collection – owners are usually too soft! Document what your customers have promised in terms of payment and hold them to it Use a debt collector sooner rather than later – the longer you leave it, the harder the debt will be to collect Stop credit for customers who are late on payment Take action! Reflect on how many of these ideas you've integrated into your business, and check how many you're actively applying. Don’t let procrastination hold you back — address your debtors today! “It’s the squeaky wheel that gets the oil” – Anon

Understanding if your business is profitable

By Anna Stubbs • November 15, 2025
Did your business run at a profit last month? Knowing if you’re currently profitable is a vital part of your financial management – but not everyone knows how to check this metric. A recent Xero survey from October 2025 revealed that nearly two in five small business owners (38%) are unaware whether their business was profitable last month. That’s a startling (and unnecessary) failing when today’s cloud accounting makes it so easy to judge your profitability. Let’s look at what we mean by ‘profitable’ and how to track and measure your profitability.