Gurmeet Answers · Bookkeeping
My business shows a profit but I have no cash. What is happening?
This is one of the most disorienting things a business owner can experience, and it is more common than people think. The short explanation is that profit and cash are not the same thing. The P&L shows revenue and expenses on an accrual basis — when they are earned or incurred, not necessarily when money moves. The bank account shows cash on a cash basis — when money actually arrives or leaves.
From Gurmeet's desk
When a client tells me they are profitable but have no cash, I go straight to three places: accounts receivable, owner draws, and debt payments. In most cases, the answer is in one of those three. Either the profit is sitting in unpaid invoices, it left the business through draws that were not recorded as draws, or it went to loan payments that do not show up as expenses on the P&L.
1. Accounts receivable — profit that has not been collected yet
If you invoice clients and record revenue when the invoice is sent, your P&L shows income that may not have been collected. The profit is real — it is just sitting in receivables rather than in your bank account. If your receivables are growing, your cash position can deteriorate even as your profit increases.
2. Owner draws and distributions
Owner draws are not expenses on the P&L. They reduce cash but do not reduce profit. If you have been drawing money from the business, that cash left the business without showing up as an expense. The profit looks intact on paper, but the cash is gone.
3. Loan and debt payments
Loan principal payments are not expenses. Only the interest portion is deductible. If you are making significant loan payments, the principal portion reduces your cash without reducing your reported profit.
4. Inventory and prepaid expenses
If your business carries inventory or makes large prepaid purchases, cash goes out before the expense hits the P&L. The cash is gone, but the profit is not yet reduced.
From Gurmeet's desk
The balance sheet is the report that connects profit to cash. If you only look at the P&L, you are missing half the picture. Business owners who understand both reports have a much clearer picture of what is actually happening in their business.
What to do
Pull your balance sheet alongside your P&L — look at receivables, owner equity, and liabilities
Review owner draws for the period — are they higher than you realized?
Check loan payment schedules — how much is principal vs. interest?
Review accounts receivable aging — how much profit is sitting in unpaid invoices?
If the numbers still do not reconcile, a bookkeeping review may be needed
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