"We had our best year ever. Where did the money go?"
I hear some version of that sentence from business owners all the time. The profit and loss statement says the company made money. The bank balance says otherwise. Both are telling the truth. They are just answering different questions.
Profit is an opinion. Cash is a fact.
Profit is what is left after you subtract costs from sales, whether or not anyone has actually paid you. Cash is what you can spend on Friday when payroll is due. A business can be profitable every month and still run out of cash, and growing companies are the ones most at risk.
When there is a gap between the two, the money is almost always sitting in one of three places.
1. Customers who owe you
You did the work in March. The invoice went out at the end of the month. The customer pays in 60 days. Meanwhile you paid your crew every two weeks and your suppliers in 30 days. You have become your customer's bank, and you are not charging interest.
Check this: add up everything customers owe you that is more than 60 days old. Then look at when your invoices actually go out. The day the job finishes, or the end of the month?
2. Materials and inventory you already paid for
Parts on the shelf, materials bought ahead for a job that slipped, stock ordered in bulk for a discount. All of it is cash that has left the bank and has not come back yet.
Check this: walk the shop or the warehouse and ask what has been sitting for more than 90 days.
3. Debt payments that never show up as an expense
When you repay a loan, only the interest appears on the profit and loss statement. The principal does not. A company paying $8,000 a month on equipment loans can show a healthy profit while $96,000 a year quietly leaves the account.
Check this: list every loan and lease with its monthly payment. Add them up. That number comes out of cash before you see a dollar of your profit.
Growth makes it worse
This is the part that surprises people. When sales grow, you pay for labor and materials today and collect weeks or months later. The faster you grow, the bigger the gap. Plenty of good companies have grown themselves straight into a cash crisis.
The one-page fix
You do not need new software. You need one page that shows, week by week for the next 13 weeks, what cash is coming in and what is going out. Start with today's bank balance, add expected customer payments, subtract payroll, suppliers, rent, loan payments and taxes.
The first time you build it, you will see the tight weeks coming a month or two ahead instead of finding out on a Thursday afternoon. That is the whole point. Cash problems you can see coming are management decisions. Cash problems you cannot see are emergencies.
Where to start
If your sales and your bank balance are telling different stories, our free BOI Snapshot will show you which of these three is the likely cause. It takes 30 minutes to start and costs nothing.