{"id":22,"date":"2026-08-25T11:02:17","date_gmt":"2026-08-25T11:02:17","guid":{"rendered":"https:\/\/accountancyexplained.co.uk\/?p=22"},"modified":"2026-08-25T11:05:48","modified_gmt":"2026-08-25T11:05:48","slug":"profit-showing-in-the-bank-balance-is-key","status":"publish","type":"post","link":"https:\/\/accountancyexplained.co.uk\/index.php\/2026\/08\/25\/profit-showing-in-the-bank-balance-is-key\/","title":{"rendered":"Profit Showing In The Bank Balance Is Key"},"content":{"rendered":"\n<p class=\"wp-block-paragraph\"><strong>Profit Showing In The Bank Balance Is Key<\/strong><strong><\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Over the years I have seen many business that have a strong profit on paper collapse as they have run out of cash.&nbsp; Indeed corporate history is littered with them \u2013 I\u2019ve linked to some of the more famous ones below as good case studies.<\/p>\n\n\n\n<ul class=\"wp-block-list\">\n<li><a href=\"https:\/\/www.sciencedirect.com\/science\/article\/abs\/pii\/S0969699702000170\">Swiss Airlines Bankrupcy<\/a><\/li>\n<\/ul>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>So why is it important that profit shows in the bank balance?<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Put simply, it is very easy to make a profit on paper, through manipulating how you present your balance sheet and P&amp;L reports.&nbsp; However, if it is not translating to cash flow then you will have a problem.&nbsp; Not necessarily immediately, it all depends on the structure and previous trading history of the business.&nbsp; But ultimately, if profit does not translate to cashflow eventually you will just run out of money as happened in the case studies above.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>Consequences of running out of cash?<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">These should be pretty obvious really, but without cash you can\u2019t pay your wages or your bills.&nbsp; And you can be sure, if you are not paying your staff they will stop working for you<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The one that can potentially have a more damaging consequence is the non-payment of finance agreements and suppliers.&nbsp; With finance agreements, the lenders are likely to move quickly to recover assets, whilst suppliers may not be able to reclaim goods and services, they will have no problem applying to the courts for a winding up petition, especially if your payment history has been poor for an extended period of time.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\"><strong>So how does profit not equal cash in the bank?<\/strong><\/p>\n\n\n\n<p class=\"wp-block-paragraph\">The most common issue, and also the least technical one in accountancy terms is customers not paying.&nbsp; Typically when a business raises an invoice, this will immediately show on the P&amp;L as a sale, and as such increase profit.&nbsp; The danger however is if a customer doesn\u2019t pay then ultimately that profit is false.&nbsp; I have written a number of other articles on the challenges of cash collection and credit control \u2013 they are well worth a read with some useful advice in them.<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Deferring costs in the accounts.&nbsp; Not such a common issue in smaller business, but a strategy that can prove risky regardless of business size.&nbsp; There is an approach called accrual accounting which allows you to defer expenses (and also revenue) in your accounts to match the timing of the event \u2013 not just when the cash changes hand.&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Accrual accounting \u2013 and placing expenses to prepayments on the balance sheet can create a false sense of security, if you are not watching your cashflow statement as well as your profit and loss account.&nbsp;&nbsp;&nbsp;<\/p>\n\n\n\n<p class=\"wp-block-paragraph\">Putting costs to prepayments in the balance sheet will make the profit numbers look better in the short time, but it does disguise the spending too if you are not watching your cash flow forecast.&nbsp; It is in part because of this that many small businesses favour the cash accounting method \u2013 working this way you recognise revenue and also costs when the money passes through the bank.&nbsp; This gives you a much clearer picture of short term profitability, and also your cash flow will look much more like your P&amp;L<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Profit Showing In The Bank Balance Is Key Over the years I have seen many business that have a strong profit on paper collapse as they have run out of cash.&nbsp; Indeed corporate history is littered with them \u2013 I\u2019ve linked to some of the more famous ones below as good case studies. So why [&hellip;]<\/p>\n","protected":false},"author":2,"featured_media":25,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_feature_clip_id":0,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_post_was_ever_published":false},"categories":[1],"tags":[],"class_list":["post-22","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-jargon-explained"],"jetpack_sharing_enabled":true,"jetpack_featured_media_url":"https:\/\/accountancyexplained.co.uk\/wp-content\/uploads\/2026\/08\/Bank_Statement.webp","_links":{"self":[{"href":"https:\/\/accountancyexplained.co.uk\/index.php\/wp-json\/wp\/v2\/posts\/22","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/accountancyexplained.co.uk\/index.php\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/accountancyexplained.co.uk\/index.php\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/accountancyexplained.co.uk\/index.php\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/accountancyexplained.co.uk\/index.php\/wp-json\/wp\/v2\/comments?post=22"}],"version-history":[{"count":1,"href":"https:\/\/accountancyexplained.co.uk\/index.php\/wp-json\/wp\/v2\/posts\/22\/revisions"}],"predecessor-version":[{"id":24,"href":"https:\/\/accountancyexplained.co.uk\/index.php\/wp-json\/wp\/v2\/posts\/22\/revisions\/24"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/accountancyexplained.co.uk\/index.php\/wp-json\/wp\/v2\/media\/25"}],"wp:attachment":[{"href":"https:\/\/accountancyexplained.co.uk\/index.php\/wp-json\/wp\/v2\/media?parent=22"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/accountancyexplained.co.uk\/index.php\/wp-json\/wp\/v2\/categories?post=22"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/accountancyexplained.co.uk\/index.php\/wp-json\/wp\/v2\/tags?post=22"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}