Cash Flow: Why Your Business Can Be Profitable but Still Struggle to Pay Bills

Taylor Vanderburgh
20 hours ago
4 min read

Cash Flow words featuring arrows pointing up and down, piggy bank sinking in water with the word "profit", the word "cash" and arrows pointing down

One of the most confusing (and stressful) moments for business owners is this: Your reports show profit—but your bank account feels tight.

You’re not alone! Many business owners will, unfortunately, feel this sense of confusion when comparing the Profit and Loss Report (which is QuickBooks' name for the Income Statement) to the lack of cash sitting in their bank account.

Why does this happen? Because profit and cash are not the same thing.

Understanding the difference can greatly reduce financial stress and completely change how you run your business (eliminating those sleepless nights spent worrying about its future!).

Let’s break it down.

Profit vs. Cash: What’s the Difference?

Profit is what your financial reports show after income minus expenses. Cash is the money actually available in your bank account to pay bills.

A business can look healthy on paper and still struggle day to day if cash isn’t flowing at the right time. Let's dig in a little further and find out why this could be happening in your business.

Reason #1: You Earn Income Before You Get Paid

Many businesses record income when the work is completed or an invoice is issued—not when payment is actually received. This approach is called revenue recognition, and it’s part of GAAP (Generally Accepted Accounting Principles).

GAAP guides how your bookkeeping should be handled. In Canada, businesses are generally required to report income using the accrual method, which means you record revenue when it’s earned (not when cash comes in) and expenses when they’re incurred (not when cash goes out).

Example: You invoice a client in January, but they pay you in March. January shows income and profit, but there's no cash (yet) which won’t help you pay January bills.

This is common for:

Service businesses
Consultants
Trades and construction
Anyone who invoices after work is completed

Your reports may look great, but your bank account hasn’t caught up yet.

Solution: Consider requesting deposits before work begins, or progress invoicing.

Reason #2: Bills Often Come Before the Money

Some expenses have to be paid no matter what:

Payroll
Rent
Utilities
Software subscriptions

Even if you know money is coming, the timing matters. If expenses go out before income comes in, cash can feel tight—even during profitable months.

Solution: Where possible, try to align or defer Cost of Goods Sold (COGS) payments (inventory, subcontractors, consultants, etcetera) so they’re closer to your own invoicing schedule and customer payment timing.

Reason #3: Inventory Uses Cash Before It Becomes an Expense

If you sell products, inventory is a major cash flow factor.

When you buy inventory:

Cash leaves immediately
It doesn’t count as an expense until the item is sold

This means your bank account drops before your profit changes.

It’s very common for product-based businesses to feel cash-poor while still being profitable.

Solution: Forecast inventory needs and order in smaller, more frequent batches so less cash is tied up at once. If possible, negotiate supplier terms (like Net 30/60) so payments line up more closely with when you actually sell the inventory.

Reason #4: Loan Payments Affect Cash More Than Profit

Loan payments reduce your bank balance, but only the interest portion counts as an expense.

So if your monthly payment is large, cash drops fast—even though profit barely changes.

This can make a profitable business feel constantly strained.

Solution: Consider refinancing or extending your loan term to lower monthly payments, and plan for loan principal repayments separately in your cash flow forecast since they reduce cash but don’t show up as an expense.

Reason #5: Owner Pay Doesn’t Reduce Profit

When business owners take money out of the business:

Cash decreases
Profit does not

This often surprises people. You can show a profit and still have less money available because of owner withdrawals.

Solution: Treat owner withdrawals like a planned “owner payroll” and set a fixed amount you can safely take based on cash flow—not just profit. Regularly review cash reserves and keep a buffer in the business so draws don’t create a cash crunch.

Reason #6: Some Expenses Don’t Use Cash Right Away (and Others Do)

Accounting includes items like depreciation or prepaid expenses that don’t line up neatly with cash movement.

This is another reason why reports and bank balances don’t always “match.”

Solution: Track cash flow separately from your profit and loss by using a simple cash forecast in QuickBooks Online that accounts for when money actually leaves your account. Reviewing your P&L alongside a cash flow statement (or monthly cash summary) helps you spot timing differences like prepaids and non-cash expenses.

Why This Matters

Businesses don’t usually fail because they aren’t profitable. They fail because they run out of cash.

Understanding cash flow helps you:

Pay bills on time
Plan for slower months
Reduce stress
Make better decisions

How Bookkeeping Helps

Good bookkeeping isn’t just about compliance—it’s about clarity.

Bookkeepers help by:

Tracking what’s coming in and what’s going out
Monitoring outstanding invoices
Watching cash flow patterns
Flagging potential issues early
Helping you understand what the numbers actually mean

This allows you to stay proactive instead of reacting to financial surprises.

In Summary

Profit tells you whether your business is working. Cash flow tells you whether your business can survive day to day.

You need both—and understanding the difference puts you in control.

If your business feels profitable but cash still feels tight, it’s not a failure. It’s a sign that cash flow needs attention—and that’s something that can be managed with the right systems and support.