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. Add the 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.

The symptoms are familiar long before they are understood. A supplier paid late for the first time, a credit line that no longer comes down, payroll covered by one large customer's deposit. What goes is more than peace of mind: decisions start being made by the day's balance. And when nobody explains the gap, the usual conclusion is that the company needs to sell more, which, in a growing business, uses up even more cash.

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: treating profit and cash as the same figure seen from two places. This is not a session on cash flow in general, with its models and forecasts. It is about the question the owner asks on the Thursday before payroll, and about why the answer is scattered across documents that are almost never read together.

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. One distinction organizes it, simple and rarely applied. Some money is standing still, in what customers owe, on the shelf or in what was paid in advance; some money left without ever passing through the income statement. The first kind is managed; the second is decided, and it helps to know which of the two is draining the account.

The format is presentation with questions, not exercise. The walk is built in front of the group on a simple example that uses no real company's figures, and it pauses at each stage so participants can recognize where the same thing happens in their own operation. Near the end there is a short moment to note down their own outflows that profit never shows, and the rest of the time is for questions, which in this talk tend to be the most productive part.

You leave with the walk written on a single page, ready for your own figures; an inventory of what leaves your account without touching the result; a way of spotting the months when profit says nothing about liquidity; and specific questions for whoever prepares your numbers. 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. Run with a company's real figures and repeated every month, the same walk is part of ALUD's work in Finance.

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.
• Recognize 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 organization 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.