Profit Is Not Cash
How does a profitable month leave you unable to pay wages?
The idea
Accounting profit and available cash differ because timing differs.
In the real world
A sale recorded today may be collected in sixty days.
Going deeper
Profit is recognised when a sale is earned; cash arrives when the customer pays. Between those two moments sit payroll, suppliers and rent, none of which will wait for your terms to mature.
This is why the best month can be the most dangerous one. Growing sales on sixty-day terms means each new order is funded by you until the money arrives, so a record month creates a record funding requirement at the same time. Businesses that fail while profitable almost always fail here, and the warning appears in a cash flow forecast rather than anywhere on the profit and loss.
Where it stops applying
For businesses paid immediately — retail, most consumer subscriptions — the gap is small and profit tracks cash closely. The distinction bites hardest where terms are long and growth is fast.
Why it matters
It tells you which number decides whether you survive the quarter, and it is not the one on the profit and loss.
Try this today
Trace when cash actually enters and leaves.
Test yourself
A business books its best month ever: £200,000 of sales, all on sixty-day terms. Payroll is due in two weeks. Why is a record month a problem?
Show the answer
The profit is recognised when the sale is made and the cash arrives two months later, but the obligations do not wait. Timing, not margin, is what closes businesses in a good year.
Learn this in the feed Answering from memory, then again days later, is what makes it stick.