--- title: You Can Make Money and Still Run Out of It description: Profit says the work paid off. Cash flow says whether you can pay people Friday. The gap between those two can kill a perfectly viable business. category: Money author: Shawn Duncan published: 2026-09-13 updated: 2026-09-13 canonical: https://businesscoachshawn.com/blog/you-can-make-money-and-still-run-out-of-it site: Shawn Duncan Business Advisory --- # You Can Make Money and Still Run Out of It Profit says the work paid off. Cash flow says whether you can pay people Friday. The gap between those two can kill a perfectly viable business. ## Key takeaways - Profit measures earnings. Cash flow measures when money actually enters and leaves your bank account. - Unpaid invoices, inventory purchases, loan principal, and owner distributions can drain cash without showing up as matching expenses. - Build a rolling 13-week cash forecast and fix the first projected shortfall before it arrives. - Shorten the gap between paying for work and collecting for it with deposits, milestone billing, and immediate invoicing. ## Your bank doesn’t accept profit Try paying your supplier with a screenshot of a profitable month. See how that goes. Profit and cash are different things. Confusing them can wreck an otherwise good business. **Profit is what you earned minus the expenses attached to earning it. Cash flow is money actually moving into and out of your accounts.** On accrual-based financial statements, you can record revenue when you earn it, even though the customer hasn’t paid. You can also record expenses before you pay the bills. Cash-basis reports work differently, so ask your bookkeeper which version you’re looking at. Neither version makes your checking account optional. Your net profit might look healthy. But wages are due Friday, the supplier wants payment Tuesday, and your customer’s accounting department apparently processes checks by carrier pigeon. That’s a timing problem. Not necessarily an earnings problem. ## Here’s how $30,000 of profit becomes a cash emergency Consider an illustrative commercial service business. Ignore taxes and equipment purchases for a moment. It starts the month with $25,000 in the bank. During the month: - It completes and invoices $100,000 of work. - It incurs $70,000 in expenses for that work. - Customers pay only $20,000 by month-end. - The business pays $60,000 of those expenses. Another $10,000 remains payable. On its accrual profit-and-loss statement, it earned **$30,000 of profit**: $100,000 minus $70,000. Its cash calculation tells a nastier story: - Starting cash: $25,000. - Customer payments received: plus $20,000. - Bills and wages paid: minus $60,000. - Projected ending cash: **negative $15,000**. That negative balance is a funding gap. Without borrowing, an owner contribution, faster collections, or delayed payments, something won’t get paid. Where’s the profit? Mostly sitting inside $80,000 of unpaid customer invoices, partly offset by $10,000 of unpaid expenses. The work made money. The payment schedule broke the bank account. ## Some cash exits barely touch your profit Late customers aren’t the only culprit. Several legitimate uses of cash don’t create an equal expense on this month’s profit-and-loss statement. - **Loan principal.** A $4,000 loan payment might contain $3,200 of principal and $800 of interest. Generally, only the interest is an expense. All $4,000 leaves the bank. - **Equipment.** Pay $35,000 cash for a used service truck and the cash disappears immediately. Financial statements generally spread its cost through depreciation. Tax treatment can differ. - **Inventory.** Buy $18,000 of parts for the shelf and you’ve swapped cash for inventory. Under accrual accounting, those parts generally become an expense when sold or used. - **Owner distributions.** Take $12,000 out as a distribution and cash drops. The withdrawal itself generally doesn’t reduce business profit. This is why “we made $40,000, so I can take $40,000” is dangerous bullshit. Gross margin tells you whether the work covers its direct costs. Net profit tells you what remains after expenses. Neither tells you how much cash is safe to withdraw today. ## Stop financing your customers by accident The dangerous gap starts when you pay for a job and ends when you collect for it. Imagine a $40,000 installation requiring $14,000 of materials before work starts and $10,000 of labor before final payment. Collect nothing upfront and you may have to fund $24,000 before seeing a dollar back. Now imagine three of those jobs overlapping. That’s potentially $72,000 tied up before overhead. Growth can increase the hole before it increases the bank balance. Change the payment structure, where contracts and local rules permit: - Collect a deposit before ordering job-specific materials. - Bill at clear milestones instead of waiting until everything is finished. - Send the final invoice the day the work is complete. - Confirm the billing contact, purchase-order requirements, and approval process before starting. - Give one person responsibility for following up on unpaid invoices. For that illustrative $40,000 job, a permitted $12,000 deposit reduces the initial funding burden substantially. A further $16,000 milestone payment can cover more costs before completion. Exact timing still matters. Put billing steps into your SOPs. “Someone usually sends it” is not a collection system. And don’t automatically discount for early payment. Giving away $800 to collect a $40,000 invoice sooner has a cost. Compare it with financing costs and the urgency of the gap. ## Forecast dates, not good intentions Build a rolling **13-week cash forecast**, with one column per week. This is a practical planning horizon, not a magic safety benchmark. Start with available bank cash. List expected receipts by realistic payment date. Then list payroll, payroll taxes, suppliers, rent, debt payments, equipment purchases, and planned owner withdrawals. Calculate each week’s ending balance. Carry it into the next week. Update every Monday against what actually happened. If the lowest projected balance is negative $22,000, you have a specific problem to solve. Move collections forward, negotiate payment dates before bills are overdue, defer optional spending, or arrange suitable financing before desperation arrives. Set your cash reserve around your forecasted gaps, essential payments, and collection uncertainty. Not somebody else’s favorite round number. ## Fix the first cash hole first Monday morning, pull your bank balance, unpaid customer invoices, unpaid supplier bills, and next two payroll totals. Build the forecast. Find the first week you can’t cover commitments. Assign a person, dollar amount, and deadline to closing that gap. Then fix the payment terms that created it. Profit matters. But money arriving next month cannot pay a bill due today. --- Source: https://businesscoachshawn.com/blog/you-can-make-money-and-still-run-out-of-it Author: Shawn Duncan, business advisor to established small businesses (Austin, Texas). Advisory: https://businesscoachshawn.com/ · Marketing: https://businesscoachshawn.com/marketing · Systems: https://businesscoachshawn.com/systems