☕ Accounting Espresso #3 You’re Making a Profit… So Where’s Your Money?

Your Monday dose of clear, practical insights for UK sole traders and small limited companies. Taxes explained. Deadlines decoded. Strategy served short and strong — just like a good espresso.

If you've ever looked at your Profit & Loss and wondered “How can I have made £20,000 and still feel broke?” — you’re not alone.

Understanding the difference between profit and cash flow is one of the most important steps in taking control of your business finances.

✅ Profit vs. Cash Flow: What’s the Difference?

Profit (also known as net profit or bottom line) is the amount your business has earned on paper after deducting all expenses from your revenue.

It’s calculated as:

Revenue – Allowable Expenses = Profit

But cash flow is about the actual money that moves in and out of your bank account.

You can be profitable and still run out of cash. Why? Because not all income and expenses are immediate or visible in your bank account.

💸 Common reasons why you’re profitable but have no cash

• Late-paying clients: your Profit & Loss shows the income as soon as the invoice is issued. But if clients take 60 days to pay, you’re left cash-poor in the meantime.

• Stock purchases or big one-off investments: you might have bought £5,000 worth of equipment or products. That’s cash out, but it may not hit your Profit & Loss as a full expense right away (especially if it’s a capital asset).

• VAT liabilities: if you’re VAT registered, the invoices you send include VAT — but that money isn’t truly yours. It must be paid back to HMRC, so it’s not “real” cash flow.

• Loan repayments or Director’s drawings: these don’t show up in your Profit & Loss, but they do reduce your cash.

• Corporation Tax or Self-Assessment due: a large tax bill at the end of the year can catch you off guard — especially if you haven’t set money aside during the year.

🔁 What you can do about it

• Track your cash flow separately from your P&L: use software like QuickBooks, Xero or even a simple spreadsheet to monitor what’s actually entering and leaving your bank account each month.

• Forecast big expenses and VAT bills: don’t treat VAT as extra income. Open a separate savings account and move it aside as soon as it’s received.

• Review your payment terms: consider offering small discounts for early payment, or switching to upfront deposits.

• Work with your accountant: they can help you run a Cash Flow Forecast or offer cash flow analysis to avoid nasty surprises.

📌 Final thought

Profit is important — but cash is king.You can’t pay rent, suppliers or HMRC with “profit on paper”.

Start looking at both sides of your financial story and you’ll be in a much stronger position to grow — without sleepless nights.