Have you ever looked at your business figures and thought:
“We made a profit, so why does there never seem to be enough money in the bank?”
It can be confusing, but making a profit and having cash available are not the same thing.
Profit and cash are different
Your profit shows how much your business has earned after taking your income and expenses into account.
Your bank balance shows how much money is actually available right now.
The two figures can be very different.
For example, imagine you have invoiced customers £10,000, but they haven’t paid you yet. That £10,000 may be included in your sales and contribute to your reported profit, but the money isn’t sitting in your bank account.
At the same time, you may have bills, VAT, wages, loan repayments or other payments leaving the bank.
You can therefore have a profitable business while still feeling short of cash.
This is why cash flow matters
Keeping an eye on when money is expected to come in and when payments are due to leave can give you a much clearer picture of the financial position of your business.
Regular bookkeeping can help you see:
- What customers still owe you
- What bills and other payments are coming up
- Whether VAT or other liabilities need to be planned for
- How much cash is actually available
- Whether there are periods where cash could become tight
It isn’t about constantly worrying about your bank balance.
It’s about knowing what is coming and being prepared for it.
Don’t wait until the bank account tells you there’s a problem
Good financial records aren’t just useful when your accounts or tax return are due.
They can help you make better day-to-day decisions throughout the year.
Because knowing your business made a profit is important.
Knowing when that profit will actually turn into cash is important too.
At Mays Accounting Services, we help small businesses keep their bookkeeping up to date, so they have clearer financial information to work with throughout the year.
Mays Accounting Services – keeping your business finances organised, so you can focus on running your business.