What you are seeing
The figures are invented to show the pattern. They are not what any business should expect.
| Number | Three months ago | Now |
|---|---|---|
| Net profit | R6 000 | R14 000 |
| Money owed by customers | R120 000 | R180 000 |
| Debtor days | 30 | 45 |
| Available cash | R90 000 | R45 000 |
Profit rose by R8 000 while available cash fell by R45 000.
What it could be revealing
| It could be revealing | How to tell | You could |
|---|---|---|
| Customers are paying later | Debtor days against your terms, and the oldest unpaid invoices | Chase the oldest invoices first and agree payment dates for the large ones |
| Cash is tied up in stock | Stock on hand against three months ago | Stop reordering slow lines until stock has sold down |
| Tax is building up unpaid | Tax owed against the money set aside | Move tax money aside as each payment arrives |
| You are taking more out | What you took home against profit | Compare it with your plan |
| Loan repayments or equipment purchases | Payments in the bank that never appear as costs in the income statement | List them and plan for them alongside profit |
Check these first
- Debtor days: is it above your terms?
- Tax set aside: is the cover falling?
- Paying yourself: did you take more out?
- Available cash: how much is yours to spend?
Our guide to profit vs cash flow covers the causes in more depth.
Questions people ask
Can a business be profitable and still run out of cash?
Yes. Profit counts a sale when you invoice it. Cash counts it when the customer pays. Slow payers, stock, tax and loan repayments can all pull cash below profit.