Receivables
Sales and profit can be recorded weeks or months before the customer pays.
Understand my cash flow
Why is my business profitable but I have no cash?
Profit measures revenue earned minus expenses recorded. Cash also reflects when customers pay, when suppliers are paid, inventory, loan principal, capital spending, taxes and owner withdrawals.
Short answerThe missing cash is usually visible in the balance sheet and financing schedules—not only the income statement. Reconcile profit to changes in working capital, debt, capital assets, tax and distributions.
Seven common places cash gets trapped or spent
Inventory
Purchases consume cash before the product is sold and the customer pays.
Growth
Payroll, suppliers and marketing may be paid before growth produces collections.
Debt principal
Principal reduces cash but does not appear as an expense on the income statement.
Capital spending
Equipment and improvements use cash while accounting expense is spread over time.
Tax and owner draws
Tax instalments, dividends and withdrawals may sit outside operating profit.
Build a profit-to-cash bridge
- Start with normalized operating profit.
- Adjust for non-cash accounting items.
- Show changes in receivables, inventory, payables and deposits.
- Subtract debt principal, capital spending, taxes and owner distributions.
- Reconcile the result to the actual change in cash.
Illustrative bridge
| Accounting profit | $250,000 |
| Receivables and inventory growth | ($130,000) |
| Debt principal and equipment | ($75,000) |
| Tax and owner distributions | ($60,000) |
| Net change in cash | ($15,000) |
What to do next
- Build a rolling 13-week cash forecast.
- Assign collection actions to overdue receivables.
- Set inventory and purchasing limits using demand and lead times.
- Match financing structure to the purpose and life of the funding need.
- Review distributions only after taxes, debt and operating liquidity are funded.
When financing is part of the answer
First determine whether the cash gap is temporary working capital, permanent undercapitalization or operating underperformance. Then estimate how much the business can safely borrow and prepare the financials a lender will need.