The profit is not in the bank

The problem it solves

The scene has a date on it. It is the Thursday before payroll, the owner is looking at the account balance, and last month's income statement, which closed with a profit, is open in another tab. None of that is an accounting error: profit is recorded when the sale happens and cash moves when someone pays, and weeks or months fit between those two moments.

The gap widens on its own as the company grows. Every new sale is invoiced before it is collected, every new customer stretches the terms a little further, and the inventory behind those sales is bought and paid for first. A company growing quickly consumes cash precisely because it is growing, and the income statement has no box where that appears.

There are also outflows the period result never records. Loan principal, a piece of equipment, the owner's draw and money collected on behalf of others that sits waiting for its date all leave the same account, and none of them subtracts from the profit line.

What it covers

The talk takes apart one confusion and takes it apart slowly, because it is the one that costs a small company the most money. It starts from the profit reported for a period and walks, step by step, to the balance actually left in the account, naming each difference along the way.

That walk has a technical name, the reconciliation between result and cash, and a very concrete use: once an owner has seen it end to end, the strange months stop being surprising. The money is in what customers owe, in what is sitting on the shelf, in what was paid in advance, or in what left without ever passing through the income statement.

The format is presentation with questions, not exercise. Anyone who needs a week-by-week cash projection for their own company will have to sit down and build it separately. This talk is the step before that one: the step that explains why it has to exist.

What participants learn

• Separate the moment a sale is recorded from the moment the money arrives.
• Walk the distance between a period's profit and the cash that remains.
• Identify the cash outflows that never appear on the income statement.
• Recognise why growth consumes cash before it returns any.
• Know what to ask when the month's result and the bank balance do not resemble each other.

Agenda

1. 01Recorded profit and collected cash: two different clocks
2. 02The walk from the period result to the balance in the account
3. 03Receivables: the sale you are still financing
4. 04Inventory and prepayments: cash standing still
5. 05Loan principal, equipment and owner draws: outflows that never subtract from profit
6. 06Money collected on behalf of others and held until its date
7. 07Why growth consumes cash before it produces any
8. 08Early signs of a cash problem in a profitable company

What the organisation leaves with

• A one-page walk from profit to cash, ready to apply to your own figures.
• The list of your company's cash outflows that never appear on the income statement.
• A rule for knowing when the month's result says nothing about your liquidity.
• The questions to take to whoever prepares your numbers before the next close.