How can a business show a $250,000 profit on paper, yet finish the year $200,000 in the red?
That’s not a theory — it’s a real example from a new client earlier this year.
Their P&L showed $2.5 million in revenue and a healthy profit margin. But when I dug into the numbers, I discovered their $100,000 opening cash balance had slipped to a $100,000 overdraft by year-end.
So what went wrong?
Simple — profit and cash flow are two very different things.
Profit Is Theory. Cash Is Reality.
When I take on a new client, one of the first things I do after our discovery session is dive into their accounting software. The goal isn’t just to review their Profit & Loss — it’s to understand how money actually moves through the business.
It’s common for a business to look profitable but still be under financial strain. Why? Because:
- Cash is tied up in unpaid invoices.
- Expenses are paid before revenue comes in.
- Tax and loan commitments haven’t been planned for.
- Or, in many cases, growth has been funded by overdraft instead of surplus.
Without visibility on cash flow, even a profitable business can quietly slip into financial stress.
Why Cash Flow Management Matters
Most small business owners live by the P&L — and for good reason. It tells you whether you’re profitable.
But profit is only one piece of the puzzle.
Profit is an accounting outcome.
Cash flow is real life.
Cash keeps your business alive — it’s what pays your staff, suppliers, rent, and the ATO. When cash flow is neglected, you start to see the warning signs:
- Constantly juggling payments.
- Unexpected tax bills you can’t cover.
- Delayed wages or super.
- Reliance on overdrafts or credit cards to survive.
A lack of cash flow management isn’t a bookkeeping issue — it’s a business survival issue.
How We Help Clients Get Cash Flow Under Control
At AD Partners, every monthly report starts with two things:
- Profitability Review: We walk through your P&L and highlight what’s working — and what’s not.
- Cash Flow Focus: We then bridge the gap between “profit” and “cash in the bank.”
It’s about understanding why your profit isn’t converting to cash, and what needs to change to fix that.
We keep things simple — starting with a basic cash flow statement that shows how your profit, adjusted for changes in assets and liabilities, explains your bank balance movement.
From there, we meet or call to discuss what’s driving the cash position — because these conversations are where the real financial improvements happen.
Five Practical Cash Flow Tips
While every business is unique, here are five fundamentals I teach all my clients:
- Review your numbers regularly.
Staying across your financials isn’t about compliance — it’s about control. Regular reviews reveal early warning signs and opportunities before they become cash problems. - Get your billing and collections right.
Don’t just focus on cutting costs — look at how fast money comes in.
Set clear payment terms, follow up overdue invoices, offer early payment incentives, and review your pricing. Cash flow improves when you tighten the cycle between work done and money received. - Focus on margin, not just revenue.
Growth that doesn’t improve margin is dangerous growth.
Chasing turnover without understanding your profit per job or client can leave you busier, more stressed, and worse off financially. - Plan for upcoming obligations.
Never manage your business by your bank balance alone.
Future liabilities like BAS, PAYG instalments, super, and loan repayments can wipe out your cash if not planned for.
Even a simple four-week forecast in Excel is far better than flying blind. - Manage supplier payments strategically.
Pay on time — not early. Many business owners pay suppliers as soon as invoices come in to “be good clients.” But using your full payment terms keeps more working capital in your business — where it belongs.
Looking Ahead
Strong cash flow is the foundation of a financially healthy business.
Once you have a monthly forecast and regular CFO-style reviews in place, you gain control. You stop reacting and start planning. You’ll make better growth decisions, sleep easier, and have confidence knowing your business can fund its own future.
Profit keeps score.
Cash keeps you alive.
If you get both right — that’s when your business really starts to thrive.
