A business can be profitable and still be constantly short of cash because profit and cash measure different things.

Profit tells you whether the company earned more than it spent over an accounting period.

Cash tells you whether there is actually enough money available right now to pay wages, suppliers, tax, finance and everything else leaving the bank.

The gap between those two numbers can be enormous.

Your profit may currently be sitting in:

Unpaid customer invoices.

Stock.

Work in progress.

Equipment.

Deposits.

Tax liabilities.

Loan repayments.

Or money already distributed to shareholders.

And growth can make the problem substantially worse because you often have to spend cash before the additional revenue turns into cash in the bank.

The British Business Bank explicitly warns that even profitable, high-growth companies can run out of cash because their working-capital requirement increases as stock and receivables grow.

So if your accountant says:

"You made £200,000 profit."

and you are staring at a bank account containing £18,000 thinking:

Where the fuck is it then?

there may be a perfectly rational explanation.

Your job is to find it.

Profit is not a pile of money sitting in the bank

This is the first misconception to remove.

Suppose your business invoices a customer £100,000 in September.

The work cost you £70,000 to deliver.

Ignoring tax and other complications, there is potentially £30,000 of gross profit in that transaction.

But imagine the customer pays in December.

During September you may already have paid:

Materials.

Employees.

Subcontractors.

Fuel.

Plant.

Premises.

That £30,000 of accounting profit does not mean the £100,000 customer payment has arrived.

You may have created profit and simultaneously reduced your bank balance.

That is the difference between earning money and collecting money.

The British Business Bank describes exactly this problem: a business can be profitable while experiencing severe short-term cash-flow issues because costs are incurred delivering products or services before the customer pays.

Cash flow is about timing

This is why I would not start with:

"Are we profitable?"

I would ask:

When does the cash leave?

and:

When does the cash arrive?

Imagine this timeline.

1 September:

Buy £30,000 of materials.

15 September:

Pay £20,000 wages and subcontractors.

30 September:

Complete job and invoice £100,000.

Customer terms:

60 days.

You may not receive the cash until the end of November.

The job can be profitable.

You still need enough cash to fund the two months between spending and collection.

Now multiply that across twenty projects.

That is working capital.

Working capital is where a lot of profitable businesses get trapped

In accounting terms, working capital is broadly the difference between current assets and current liabilities.

But in practical owner language:

It is the financial capacity required to keep the business operating while money moves through the trading cycle.

The British Business Bank notes that working capital is essential for meeting everyday financial obligations such as employees and suppliers, and that growing businesses often require increasing amounts of it.

The longer your cash cycle, the more money the company normally needs to fund it.

First place to look: debtors

This is probably the most obvious.

You have:

£300,000 in the bank?

No.

You have:

£300,000 owed to you.

Those are not the same thing.

Look at your aged debtors.

How much is:

Current?

30 days?

60 days?

90 days?

120+ days?

Then ask:

Which customers repeatedly pay late?

Which invoices are disputed?

Which invoices were simply issued late?

Which are missing purchase orders?

Which require certification?

Which are being chased?

Who owns collecting them?

A profitable business can become desperately cash constrained while carrying a huge debtor book.

Revenue is not cash until somebody pays you

This sounds almost insultingly obvious.

But businesses behave as though issuing the invoice completed the commercial cycle.

It didn't.

The cycle ends when the money arrives.

You can have:

Excellent revenue.

Excellent margins.

Excellent profit.

Terrible collection.

And eventually no cash.

That is why debtor management is not merely a finance administration function.

It is part of commercial management.

Late payment remains a serious UK business problem

The Government's 2026 response to its late-payment consultation estimates that late payment costs the UK economy around £11 billion each year and reports that affected business owners spend an average of 86 hours annually chasing overdue invoices.

The current Government late-payment collection also explicitly identifies delayed payments as a cause of cash-flow pressure and reduced ability to invest and grow.

Whatever legislation eventually changes, you still need your own credit-control process today.

Measure debtor days

You do not need to become an accountant.

You need to understand whether customers are paying more slowly.

If debtor days were:

38 days last year.

And now:

61 days.

That deterioration consumes cash.

Perhaps revenue has increased at the same time.

Now more money is outstanding for longer.

That can make an apparently successful year feel financially horrible.

Invoice quickly

One astonishing source of cash-flow delay is businesses doing the work and then waiting to invoice.

Job finished Friday.

Invoice goes out two weeks later.

Terms start from invoice date.

You voluntarily financed another fourteen days.

If the process allows it, invoice as soon as the contractual trigger is reached.

For project businesses, make sure everyone understands:

Applications.

Valuations.

Certificates.

Purchase orders.

Completion evidence.

Anything else required before the customer will process payment.

Cash collection often starts operationally long before credit control gets involved.

Get disputes resolved early

A £50,000 invoice is not really a useful receivable if everyone knows the customer is refusing to pay it.

Why is it disputed?

Incorrect amount?

Missing paperwork?

Scope disagreement?

Quality issue?

Purchase order missing?

Certification?

Commercial argument?

Give someone responsibility for resolution.

Otherwise the debtor report can create a false sense of security.

Money theoretically owed is not identical to money likely to arrive on time.

Second place to look: stock

Cash can disappear onto shelves remarkably efficiently.

You buy:

Materials.

Components.

Products.

Packaging.

Spares.

Consumables.

Finished goods.

They are assets.

But they are not cash.

Perhaps your business grew.

To support that growth, you increased stock from:

£150,000.

to:

£300,000.

There is £150,000 of additional money tied up in inventory.

The company may be more profitable than last year.

The bank can still feel worse.

The British Business Bank specifically identifies inventory growth as one reason profitable high-growth companies can experience cash pressure.

Ask whether you genuinely need all the stock you are carrying

Break it down.

Fast-moving.

Slow-moving.

Obsolete.

Strategic.

Customer-specific.

Safety stock.

Dead stock.

Some industries genuinely need substantial inventory.

Fine.

The question is not:

"How do we get stock as low as possible?"

It is:

How much cash are we deliberately tying up, and why?

Excess stock is effectively cash that has stopped being liquid.

Purchasing behaviour can quietly create cash problems

Bulk discount.

Sounds attractive.

"If we buy twelve months' worth now, we save 8%."

Maybe.

How much cash does that consume?

What else could that cash have done?

Could demand change?

Could the product become obsolete?

Are you financing the supplier's production efficiency with your balance sheet?

Sometimes the discount absolutely justifies it.

Sometimes:

"We saved £8,000."

means:

"We tied up £100,000 of cash for nine months."

Evaluate both sides.

Third place: work in progress

This is enormous in contracting, manufacturing, professional services and project businesses.

You may have performed:

Labour.

Design.

Materials.

Manufacturing.

Site work.

Management.

but not yet reached the point where you can invoice.

That cash is sitting in work in progress.

Perhaps technically profitable work.

Still not money in the bank.

Ask:

How much WIP do we carry?

How old is it?

What prevents invoicing?

Are project milestones too large?

Are variations being captured?

Are jobs being closed promptly?

Is somebody waiting for information before billing?

Again, operational behaviour affects cash.

Your contract structure changes your cash requirement

Imagine two otherwise identical £300,000 projects.

Project A:

20% deposit.

Monthly stage payments.

Final 10% on completion.

Project B:

You fund almost everything and invoice at completion on 60-day terms.

Same headline revenue.

Completely different working-capital requirement.

Commercial terms matter.

When negotiating work, do not only consider:

Price.

Consider:

When does cash arrive relative to cost?

Deposits can fundamentally change the economics

Where commercially appropriate and accepted in your sector, deposits can move some funding requirement towards the customer.

So can:

Stage payments.

Milestone billing.

Mobilisation payments.

Monthly applications.

Earlier invoicing triggers.

Not every customer or market will accept those.

But payment terms are part of the commercial deal.

Treat them that way.

Fourth place: growth

This surprises people more than almost anything else.

Growth can create cash problems.

Business doing £2 million turnover.

You grow to £3 million.

Excellent.

But to deliver that extra £1 million, you may first need:

More employees.

Materials.

Stock.

Vehicles.

Equipment.

Premises.

Recruitment fees.

Software.

Working capital.

And perhaps the additional customers pay sixty days after delivery.

You pay the costs before collecting the revenue.

The faster the growth, the faster that cash requirement can increase.

The British Business Bank explicitly says growth frequently causes cash-flow problems because each new sale must be funded through working capital, with additional stock and customer credit often required before payment arrives.

Profitable growth can therefore consume cash

This is not a contradiction.

Imagine each £100,000 of additional sales ultimately produces £15,000 profit.

Great.

But you need £60,000 of cash temporarily tied up in labour, material, WIP and receivables while delivering it.

Double your volume rapidly and the funding requirement expands before the profit converts to cash.

You can grow yourself into a cash crisis.

That is one reason Article #39 covered operational and financial capacity together.

Growth has to be fundable.

Ask how much working capital each £1 of growth requires

This can be extremely useful.

Not necessarily an exact universal ratio.

Your accountant or Finance Director can help model it.

If revenue increases by £500,000:

How much extra cash gets tied up?

Debtors?

Stock?

WIP?

Payroll?

VAT?

Supplier payments?

Now you can ask:

Can the business internally fund that?

Do commercial terms need changing?

Do we need external finance?

Should growth happen more slowly?

That is a strategic growth conversation.

Not a panic at the bank balance three months later.

Fifth place: capital expenditure

You made £200,000 profit.

Then spent £150,000 cash on:

Machine.

Vehicle.

IT system.

Equipment.

Refurbishment.

Perhaps perfectly sensible.

But the bank balance fell by £150,000.

Accounting treatment may mean the cash purchase and profit impact are recognised differently over time, and tax relief can also depend on the capital-allowance treatment of qualifying expenditure. HMRC's current guidance sets out capital allowances available for qualifying plant, machinery and other assets.

The important owner-level point is simpler:

Buying an asset can consume substantial cash without appearing as an equivalent immediate operating expense in the profit figure you are looking at.

So reconcile major capital spending.

Ask what assets you bought this year

This is one of the first questions if somebody says:

"We made money but I've got none."

Vehicles?

Equipment?

Refurbishment?

IT?

Deposit on premises?

Large stock purchase?

Acquisition?

The cash may not have vanished.

It changed form.

From:

Cash.

Into:

Assets.

Whether that was a good decision is a separate conversation.

Sixth place: loan repayments

Another common misunderstanding.

You borrow money.

Later repay it.

The cash leaves your bank.

But accounting profit and loan repayment do not move identically.

Interest is generally a finance cost.

Repayment of the loan principal reduces the liability rather than functioning like a normal trading expense.

So you can have healthy reported profit while significant cash is being used to repay debt.

Look at:

Bank loans.

Asset finance.

Commercial mortgages.

Director loans.

Other borrowing.

How much principal is being repaid each month?

The P&L does not tell the whole cash story.

A business can become more profitable and still feel poorer while aggressively paying down debt

That might be completely deliberate.

Maybe last year you owed £500,000.

This year £300,000.

You generated cash.

Then used £200,000 of it to strengthen the balance sheet.

Good.

The money did something useful.

But it is no longer in the current account.

Again:

Profit asks:

Did we earn money?

Cash asks:

Where did the money actually move?

Seventh place: tax

Tax catches owners because the timing is disconnected from today's trading.

VAT.

PAYE.

National Insurance.

Corporation Tax.

The bank account may contain money that is economically or legally destined elsewhere.

Particularly VAT.

If you collect VAT from customers and mentally treat the entire bank balance as spendable company money, you can create a very nasty surprise.

Use separate visibility for tax obligations.

Corporation Tax timing can also create large cash movements

For many limited companies with taxable profits of up to £1.5 million, Corporation Tax is normally payable nine months and one day after the end of the accounting period. Different arrangements apply above relevant thresholds.

That means the cash payment can arrive many months after the profit that created the liability.

If you have not reserved for it, the bill feels like cash has suddenly disappeared.

It hasn't suddenly appeared as a business cost.

The timing of the cash payment arrived.

Keep a tax reserve if that helps you manage behaviour

Some companies use separate accounts or explicit internal reserves.

The mechanism matters less than the discipline.

Know:

What tax is due?

How much?

When?

Do not use money reserved for tax to fund normal operations without consciously recognising what you are doing.

That is not available headroom.

It is borrowing from a future obligation.

Eighth place: dividends and money taken out of the company

This one is sometimes surprisingly sensitive.

The business made £250,000 profit.

Great.

How much did shareholders take out?

Dividend.

Director's loan.

Other distributions.

Maybe perfectly legitimate.

But money extracted from the company is no longer available as working capital.

For UK limited companies, GOV.UK states that dividends are paid from available company profits and cannot be treated as a business cost when calculating Corporation Tax.

The Insolvency Service's updated 2026 director guidance similarly notes that dividends must come from retained company profits.

Again, profit and cash are moving differently.

Profit does not mean the owner can safely withdraw all the profit

Suppose the company earns £200,000.

But next year needs:

£100,000 additional working capital.

£50,000 equipment.

£40,000 Corporation Tax liability.

A stronger cash reserve.

Paying out the maximum legally available dividend may still be a poor commercial decision.

Legal ability and financial wisdom are different questions.

Work with your accountant.

Ninth place: timing of drawings in non-company structures

For sole traders and partnerships, the accounting and tax mechanics differ from limited companies.

But the practical point remains.

Money withdrawn by the owner reduces cash available to operate the business.

If personal withdrawals increase faster than the company's cash generation, pressure follows.

Know what the business needs.

Then decide what can safely come out.

Tenth place: suppliers are being paid faster than customers pay you

Imagine:

Supplier terms: 30 days.

Customer terms: 60 days.

You effectively fund the gap.

If customer payment actually arrives at day 75?

Bigger gap.

You might be commercially successful and perpetually financing your customers.

Review:

Customer terms.

Actual customer payment behaviour.

Supplier terms.

Actual supplier payment timing.

The cash cycle matters more than either term in isolation.

The British Business Bank recommends considering debtor days, creditor days and inventory management when seeking to shorten the working-capital cycle.

This does not mean delaying suppliers dishonestly

Do not simply stop paying people.

Supplier relationships matter.

Terms matter.

Negotiate.

If you want 45 days instead of 30:

Ask.

Perhaps volume justifies it.

Perhaps the supplier can accommodate it.

But do not build your cash-flow strategy around breaking commitments to other SMEs.

Good working-capital management is not simply making your cash problem somebody else's cash problem.

Eleventh place: margin might actually be weaker than you think

We should not assume every cash problem is merely timing.

Maybe the company is technically profitable.

Just not profitable enough.

£5 million revenue.

£50,000 profit.

One bad debtor.

One tax payment.

One unexpected repair.

Cash crisis.

A 1% net margin leaves very little room for error.

So look at cash and profitability separately.

Article #35 looked at why revenue can grow without profit.

Both questions matter:

Are we making enough money?

and:

Are we converting enough of that money into cash quickly enough?

A business can fail either test.

EBITDA is definitely not cash

This deserves saying.

Owners sometimes get given:

Revenue.

Gross profit.

EBITDA.

and feel reassured.

EBITDA deliberately excludes several things.

Interest.

Tax.

Depreciation.

Amortisation.

Yet your bank account may still have to deal with:

Debt repayments.

Tax.

Capital expenditure.

Working capital.

Dividends.

So:

"EBITDA is £500,000."

does not mean:

"We generated £500,000 cash."

It is a useful performance measure.

Not a bank balance.

Profit after tax is not free cash flow either

Same issue.

The cash position is influenced by:

Receivables.

Payables.

Inventory.

Capital expenditure.

Borrowing.

Debt repayments.

Distributions.

Timing.

You need different reports for different questions.

P&L:

Did we trade profitably?

Balance sheet:

What do we own and owe?

Cash-flow forecast:

Can we pay what needs paying when it becomes due?

All useful.

Different jobs.

Stop managing cash through the bank balance alone

This is one of the weakest financial systems in an otherwise successful business.

Owner checks bank.

£180,000.

Feeling good.

Three weeks later:

VAT.

Payroll.

Supplier run.

Finance payment.

Corporation Tax.

Now:

£22,000.

What happened?

Nothing surprising.

You simply looked at cash without looking at future obligations.

Bank balance is a snapshot.

Cash management needs a forward view.

Build a cash-flow forecast

If cash is repeatedly tight, I would treat this as non-negotiable management information.

The British Business Bank explicitly recommends cash-flow forecasting so businesses can anticipate future shortfalls and make decisions before a problem becomes critical.

It does not need to be beautiful.

It needs to be credible.

I particularly like a short-term 13-week cash forecast

This is a practical preference rather than some magical accounting standard.

Thirteen weeks gives roughly three months of visibility.

Long enough to see:

Payroll.

VAT.

Supplier payments.

Debt collections.

Tax.

Major purchases.

Loan repayments.

Potential pinch points.

Short enough that the assumptions can remain reasonably grounded.

For each week:

Opening cash.

Expected receipts.

Payroll.

Suppliers.

Tax.

Finance.

Other material payments.

Closing cash.

Then update it weekly.

Do not build the forecast once and admire it

Cash forecasting is useful because reality changes.

Customer payment delayed.

New order.

Unexpected equipment repair.

Recruitment.

Supplier request.

Update the forecast.

Compare:

What did we expect?

What actually happened?

Forecast quality should improve.

Over time, the business stops being surprised by predictable cash events.

Use conservative assumptions on receipts

This is important.

Customer says:

"Yeah, should be paid Friday."

Is that reliable enough to build payroll around?

Maybe not.

Use payment history.

Contractual terms.

Current discussions.

Certainty.

Do not solve the cash-flow forecast by typing optimistic dates into Excel.

That does not create cash.

It creates fiction.

Build three categories of receipt

You might distinguish:

Highly certain.

Probable.

Possible.

Or simply forecast using conservative dates.

Whatever works.

The point is recognising that:

Invoice raised.

is not identical to:

Cash guaranteed next Tuesday.

Look at the cash conversion cycle

For an established business this can become a powerful management concept.

How long between:

Paying for the resources required to deliver the work.

and:

Receiving payment from the customer?

If you can shorten that period, you release cash.

Possible levers include:

Lower inventory.

Faster production.

Faster project completion.

Earlier billing.

Deposits.

Stage payments.

Faster collections.

Better terms.

Longer agreed supplier terms.

Not all apply to every business.

But the cash cycle can often be redesigned.

Cash problems are frequently operational problems wearing a finance costume

Invoice raised late.

Why?

Operations never closed the job.

Cash problem.

Application rejected.

Why?

Paperwork incomplete.

Cash problem.

Customer won't pay.

Why?

Quality dispute unresolved.

Cash problem.

Stock excessive.

Why?

Purchasing process poor.

Cash problem.

WIP high.

Why?

Projects move too slowly.

Cash problem.

This is why I do not think cash management belongs entirely to Finance.

Operations and commercial behaviour create the numbers Finance eventually reports.

Put cash consequences into management conversations

Sales wants 90-day terms for a customer.

Fine.

What is the cash cost?

Operations wants £100,000 additional stock.

Fine.

Why?

Project team wants to delay invoicing until several jobs are complete.

Why?

These are operational choices with financial consequences.

Managers should understand both.

Otherwise Finance becomes the department constantly saying no after everybody else already committed the money.

Create a weekly cash rhythm when cash is tight

For a business with recurring pressure, I would review weekly:

Current bank balance.

13-week forecast.

Receipts expected this week.

Overdue debt.

Large supplier payments.

Payroll.

Tax.

Major unusual outflows.

Known risks.

Actions.

Keep it commercial.

Do not turn it into three hours of accounting detail.

The purpose is:

What happens next and what decision is required?

Debtors need owners too

Not "Finance".

Which person owns:

Chasing?

Disputes?

Certificates?

Customer relationships?

Escalation?

A Finance Administrator cannot resolve a £70,000 invoice dispute caused by a Project Manager failing to agree variations.

Put ownership where the blockage actually exists.

Build cash into customer selection

Imagine two customers.

Both generate £100,000 annual gross profit.

Customer A:

Pays in 20 days.

Customer B:

Pays in 90.

Customer B requires substantially more working capital.

They may still be an excellent customer.

But payment behaviour is part of customer profitability and risk.

Do not assess customers only on revenue and gross margin.

Cash reserves matter

There is no universal magic number that every SME should hold.

Business models differ enormously.

A recurring-revenue digital company has different requirements from a construction contractor carrying labour, materials and 60-day debtor terms.

But decide deliberately:

What cash buffer does this business need?

Consider:

Payroll.

Fixed overhead.

Customer concentration.

Seasonality.

Working-capital cycle.

Debt.

Access to finance.

Volatility.

Then build toward something appropriate with your accountant or finance adviser.

A permanently empty bank account is not necessarily normal

Owners can become conditioned to it.

Payroll goes out.

Bank nearly empty.

Customer payment lands.

Relief.

Supplier payment.

Empty again.

Next month.

Same.

Eventually:

"That's just business."

Maybe.

Or perhaps you are operating with structurally insufficient working capital.

The fact that you survived last month does not mean the structure is healthy.

External finance can be appropriate

This is important.

I am not suggesting every cash gap should be solved entirely from retained profits.

Businesses use:

Overdrafts.

Working-capital loans.

Invoice finance.

Revolving facilities.

Asset finance.

Other appropriate commercial finance.

The British Business Bank identifies multiple working-capital finance options, including loans, revolving facilities, invoice finance and overdrafts, while stressing the need to understand cost, repayment obligations and suitability and to seek independent specialist advice where appropriate.

Finance can be an excellent tool.

But first know what you are financing.

Finance should fund a cash-cycle gap, not disguise a broken business model

Suppose:

The work is profitable.

Customers reliably pay in 60 days.

You need to fund those 60 days.

That may be a legitimate working-capital finance problem.

Different scenario:

Every job loses money.

You use an overdraft to keep paying wages.

Then another loan.

Then invoice finance.

That is not financing growth.

You may be financing losses.

No funding product fixes structurally bad economics.

Diagnosis first.

Invoice finance can help some businesses and be completely wrong for others

If substantial cash is tied up in receivables, invoice finance can release part of that money earlier.

The British Business Bank describes factoring and invoice discounting among available working-capital tools, while noting they involve fees and finance costs.

Whether that makes sense depends on:

Margin.

Customer quality.

Invoice profile.

Commercial terms.

Cost.

Security.

Administration.

Your overall finance structure.

Speak to appropriate finance professionals.

Do not choose funding because an internet article told you to.

Before borrowing, release trapped cash where sensible

Ask:

Can we invoice faster?

Collect faster?

Reduce WIP?

Reduce excess inventory?

Negotiate deposits?

Use stage payments?

Improve disputed-invoice resolution?

Renegotiate appropriate supplier terms?

Sell genuinely unused assets?

Then determine the remaining finance requirement.

Borrowing can be useful.

But there is little point financing an avoidable £200,000 debtor problem forever if the underlying collection process is terrible.

Be careful with merchant cash advances and expensive short-term finance

Convenient finance can carry substantial cost.

The British Business Bank describes merchant cash advances as potentially expensive and similarly warns that some modern working-capital products can cost more overall than traditional lending.

If the company is already under cash pressure, expensive finance can solve today's problem while making next month's harder.

Understand:

Total cost.

Repayment mechanism.

Security.

Personal guarantees.

Effect on future cash flow.

Get advice.

How do you know if this has moved beyond an ordinary cash-flow problem?

This matters.

There is a difference between:

"We have a temporary working-capital squeeze."

and:

"We cannot pay debts as they fall due."

The Insolvency Service states that a company can be insolvent if it cannot pay its debts when they become due or if its debts exceed the value of its assets. Directors' responsibilities also change when the company becomes insolvent, including duties towards creditors.

If you are:

Unable to meet payroll.

Unable to pay HMRC.

Persistently unable to pay suppliers.

Using new debt merely to cover old overdue debt.

Facing statutory demands or serious creditor action.

Do not treat that as a coaching exercise.

Get professional advice from your accountant and, where appropriate, a licensed insolvency practitioner immediately.

Profitable on paper does not make insolvency impossible

This is exactly why cash matters.

The Insolvency Service's own guidance states that insufficient cash can put an otherwise effectively trading company at risk and highlights business growth as one period where cash-flow problems can arise.

Do not allow:

"But we're profitable."

to create false comfort if bills cannot actually be paid.

A practical cash diagnostic

If the business appears profitable but cash is constantly tight, I would work through this in order.

1. Confirm the profit is real

Look at:

Gross margin.

Operating profit.

Net profit.

One-off adjustments.

Ask your accountant if you do not understand the numbers.

2. Reconcile the cash

Where did money move that the P&L does not immediately explain?

Debtors?

Stock?

WIP?

Equipment?

Loan principal?

Tax?

Dividends?

3. Measure working capital

Current debtors.

Creditor position.

Stock.

WIP.

Payment timing.

Identify what increased.

4. Build a 13-week cash forecast

Weekly receipts and payments.

Use realistic assumptions.

5. Find the biggest cash constraint

Do not create fifteen initiatives.

Perhaps 70% of the problem is simply:

Customers paying too slowly.

Or:

Stock.

Or:

Growth.

Focus there.

Create a simple cash bridge

This is another useful exercise.

Start:

Opening bank balance: £150,000.

Then:

• cash generated from trading.
• increase in debtors.
• increase in stock.
• capital expenditure.
• loan repayments.
• tax.
• dividends.

= closing cash.

The exact accounting reconciliation should come from your accountant or finance team.

But conceptually this answers the owner's question:

Where did the money go?

Because it went somewhere.

Example: the profitable £3 million business with no cash

Imagine:

Operating profit: +£250,000.

Excellent.

But during the year:

Debtors increased: -£120,000.

Stock increased: -£60,000.

New machine purchased: -£80,000.

Loan principal repaid: -£30,000.

Dividends paid: -£50,000.

Very simplified, but you can immediately see why:

"£250,000 profit"

does not equal:

"£250,000 more cash."

Several completely rational business decisions absorbed the cash.

Now management can decide which are acceptable.

Cash pressure is often a symptom of success and weakness at the same time

Success:

More orders.

More customers.

More stock.

More employees.

Weakness:

Poor collection.

Poor forecasting.

Poor contract terms.

Poor stock management.

Low margins.

Uncontrolled drawings.

Both can exist simultaneously.

Do not romanticise the cash problem because:

"We're just growing so fast."

Equally, do not assume growth is bad because it consumes cash.

Understand the mechanism.

The owner needs forward visibility

This is the biggest improvement I would want.

Not:

"How much money do we have?"

But:

"What will our cash position probably look like in thirteen weeks, and what assumptions create that number?"

That lets you decide today.

Recruit?

Wait?

Buy equipment?

Negotiate terms?

Use finance?

Collect debt?

Reduce stock?

Delay dividend?

That is control.

Cash forecasting also changes the quality of conversations with lenders

There is a substantial difference between approaching a bank saying:

"We've run out of money."

and:

"We expect a £180,000 working-capital requirement over the next four months because we have secured this level of profitable growth on these payment terms. Here is the forecast and debtor profile."

One is a surprise.

The other is financial planning.

Finance providers still make their own decisions, of course.

But good information improves your own ability to understand what you are asking for and why.

Your management accounts and cash forecast should talk to each other

You do not need separate financial universes.

Profit forecast says:

We expect £300,000 profit.

Cash forecast says:

We still hit a £70,000 shortfall in June.

Why?

Investigate.

Perhaps:

Corporation Tax.

Large stock build.

Debtor timing.

Equipment.

Then the owner can decide.

That is far better than discovering June in June.

How Evolve approaches a profitable business with no cash

If a coaching client tells me:

"We're profitable but constantly skint."

I am not their accountant.

I am not going to pretend I should be.

But there are a series of commercial questions I absolutely want answered.

What is the profit?

What happened to gross margin?

How much is owed to you?

How old is it?

How much cash sits in stock?

What is in WIP?

How quickly do customers pay?

How quickly do you pay suppliers?

What capital did you buy?

What debt are you repaying?

What has come out through dividends or owner withdrawals?

How much working capital is growth consuming?

Do we have a cash-flow forecast?

Once those answers exist, the problem becomes much easier to see.

Then the correct specialist may be:

Your accountant.

Finance Director.

Fractional CFO.

Finance broker.

Lender.

Insolvency practitioner.

Or perhaps the operational and management work sits inside coaching.

The important thing is getting the right intervention.

You may not need a coach at all

If your only problem is:

"I do not understand my cash-flow forecast."

Talk to your accountant.

If you need:

Working-capital facility selection.

Talk to an appropriate finance professional.

If the company may be insolvent:

Get insolvency advice.

Where coaching becomes useful is often in the behaviour and decisions creating the financial pattern.

Why are invoices late?

Why does nobody own debt collection?

Why did sales agree terrible terms?

Why does stock keep growing?

Why are project managers failing to close WIP?

Why are you accepting low-margin work?

Why is expansion happening without capacity planning?

Those are management questions.

Cash flow should become part of operating discipline

Not something Finance mentions when the bank balance looks uncomfortable.

Commercial decisions create cash consequences.

Operations creates cash consequences.

Growth creates cash consequences.

Owner withdrawals create cash consequences.

Bring cash into normal management.

That does not mean every manager needs to become an accountant.

They should understand how their decisions affect the business's ability to fund itself.

So, why is your profitable business always short of cash?

Because profit and cash are different.

Your money may be sitting in:

Debtors.

Inventory.

Work in progress.

Assets.

Or the additional working capital required to fund growth.

Cash may also be leaving through:

Tax.

Debt repayment.

Capital expenditure.

Dividends.

Owner withdrawals.

You may be paying suppliers significantly earlier than customers pay you.

Or your margins may simply be too thin to generate a safe cash buffer.

Start by confirming that the business genuinely is profitable.

Then trace where the cash went.

Build a short-term cash-flow forecast.

Measure debtor days.

Look at stock and WIP.

Map payment timing.

Understand tax and debt obligations.

Review extraction from the company.

Then decide whether the problem needs:

Better operations.

Better commercial terms.

Better financial management.

More working capital.

Or professional intervention.

Because the question:

"Where has all the money gone?"

should not remain a mystery in an established business.

The answer exists in the numbers.

And once you can see it, you have agency over what happens next.