Here at Dash Accounting Services this is one of the most overlooked issues from a financial perspective in your business that we see time and time again.

Most business owners review their profit regularly However, fewer track their cashflow and the difference between the two is often where many business issues arise.

The most common situation we see is that businesses are generally profitable but constantly feel strained from a cash perspective. The issue is usually a timing problem.

Why profit and cash don’t always match

Accounting works on an accruals basis. That means revenue is recorded when a sale happens, e.g. when you raise the invoice, not when the money actually lands in your bank account. Costs work the same way. So your P&L reflects what you’ve earned and spent. Your bank account reflects when the invoices are paid and when you pay suppliers.

Nothing happens instantly so this is why it is key to account properly so your financial statements are correct. We often see clients working with a few big clients on longer payment terms e.g. 60 or 90 days and then paying suppliers within 30 days and this is where cashflow problems happen. 

What this looks like in practice

We work with a lot of service based SME businesses where this plays out in a very specific way. They’re busy, invoicing consistently, and by every measure growing. But cash feels tight. Month to month, there’s stress around making supplier payments and payroll on time.

When we review the financials, the story usually becomes clear pretty quickly. Large clients on long payment terms. A concentration of revenue landing in certain weeks of the month. Outgoings such as  payroll, software, subscriptions that need paid monthly. The business is profitable but there is a lag in cash as payments coming in are lagging behind payments going out.

At Dash Accounting Services we work with many SME service based businesses across the UK to help get this aligned. Sometimes it’s tightening payment terms. Sometimes it’s invoice financing for specific clients. Sometimes it’s just having a 6 month cashflow forecast so you can see what’s coming and plan accordingly, rather than reacting after the fact.

When you’re running a business day-to-day, it’s natural to use the bank balance as a rough guide to how things are going. However, by the time it tells you something’s wrong, you’ve often already got a problem to solve rather than being proactive and avoiding it happening in the first place.

A proper cashflow forecast lets you see 3-6 months out. It won’t fix all your problems, but it will tell you enough to make good decisions early rather than difficult ones late.

If your business is profitable but cash always feels tight, the answer isn’t always to grow faster or cut costs. Sometimes it’s simply to get a clearer view of the timing of your money in and money out. That clarity changes how you make decisions and how much stress you carry day to day.

If that sounds like something worth looking at, we’re happy to have that conversation. Get in touch with the team at DASH Accounting Services.

 

Written by Danielle Biggins and Shannon McDonald