Profit is an opinion. Cash is a fact.
Why a profitable business can still run short on cash - and a simple way to see it coming.
Most founders spend more time looking at their profit than their cash. It makes sense - profit is the number on the report, the one your accountant asks about, the one that tells you whether the year "went well."
But profit is an opinion. It depends on judgement calls: how you value stock, when revenue gets recognised, what gets depreciated and when. Cash is a fact. It's either in the bank or it isn't.
We were reminded of this recently, sitting down with a room of New Zealand founders at Founder's Table to work through their own numbers. Most were profitable on paper, and it didn't take long for the conversation to turn to cash.
That gap is more common than most founder-led businesses expect, and it catches people out because nothing in the P&L warns them it's coming.
Why the gap opens
A few things usually drive it:
Timing: You've made the sale, but the invoice hasn't been paid yet. Your P&L says you earned it. Your bank account says otherwise.
Debt repayments and capital purchases: A loan repayment reduces your cash but doesn't touch your profit. A new piece of equipment can do the same.
Growth itself: Stock, wages, and suppliers usually need paying before the sales they support come in. The faster you grow, the more cash that growth can quietly absorb.
None of this means the business is in trouble. It means profit and cash are answering two different questions, and a founder needs to be watching both.
A simple way to see it coming
You don't need complex modelling to get ahead of this. A basic 90-day view does most of the work:
Cash in the bank today: The actual balance, not a projection.
What's coming in over the next 90 days: Split into confirmed (invoiced, contracted) and likely (forecast, not yet certain).
What's going out over the same period: Fixed costs (rent, wages, loan repayments) separate from variable ones (stock, one-off spend).
Lay those three things out month by month and the tight months usually show themselves weeks before they arrive, while there's still time to act.
What changes
The businesses that manage this well aren't the ones with the fanciest spreadsheet. They're the ones with someone reading the numbers alongside them, who can tell them what it actually means for their business - whether that's chasing a payment early, holding off on a purchase, or knowing they can make the hire after all.
A 90-day view will show you what's coming. Someone who knows your business tells you what to do about it.
Common questions
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Profit and cash are measuring different things. Profit counts a sale the moment it's made; cash counts it the moment it's paid. Add in GST, loan repayments, and stock you've already paid for, and a profitable month can still leave you short.
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Start with the three numbers discussed above: what's in the bank today, what's confirmed to come in over the next 90 days, and what's committed to go out over the same period. Update it monthly and the pattern usually shows itself well before a tight month arrives.
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It depends on your fixed costs and how predictable your income is. As a starting point, most founder-led businesses aim to hold enough to cover 1-3 months of fixed costs, more if income is seasonal or irregular.
