It is one of the most common surprises in running a business: the profit and loss report says you made a healthy profit last quarter, yet the bank account is lower than it was. Nothing is necessarily wrong. Profit and cash measure different things.
Profit and cash are measured differently
- Profit is what you earned minus what it cost to earn it, counted when the sale or cost happens. You make a sale when you invoice, even if the customer pays later.
- Cash is money actually in the bank, counted when it moves.
Most of the time the two move together. When they don't, it is almost always for one of the reasons below.
1. Customers haven't paid yet
You invoice AED 50,000 in March. It counts as March income straight away, so March shows a profit. If the customer pays in May, none of that money is in the bank in March or April.
This is the biggest reason profitable small businesses run short of cash. The faster your sales grow, the more cash is tied up in unpaid invoices. See how to get paid faster.
2. You paid for things that aren't costs yet
Some payments leave the bank without reducing profit in the same month:
- Stock you bought but haven't sold yet.
- Equipment and other assets, whose cost is spread over the years you use them.
- Payments in advance, such as a year's rent paid up front.
3. Loans and owner's money
Borrowing money increases your cash but is not income. Repaying the loan reduces your cash, but only the interest is a cost. In the same way, money the owner takes out of the business reduces cash without being a business expense.
4. Bills you haven't paid yet
The reverse also happens. If you have received a supplier's bill but not paid it, the cost already counts against profit while the cash is still in your account. This can make cash look healthier than it really is.
5. Non-cash costs
Some costs reduce profit without any money leaving that month. The most common is depreciation, the yearly share of what equipment cost you.
A quick worked example
| Profit view | Cash view | |
|---|---|---|
| Sales invoiced this month | 80,000 | |
| Payments received from customers | 45,000 | |
| Costs, including this month's share of the laptop | −60,000 | |
| Costs actually paid | −52,000 | |
| New laptop bought | (spread over years) | −6,000 |
| Result | 20,000 profit | 13,000 less cash |
An example only, in AED.
The business made AED 20,000 profit, but the bank balance fell by AED 13,000 because customers had not paid yet and the laptop was paid for in full.
Why it matters
- Profit tells you whether the business works. Over time, a business must make a profit.
- Cash tells you whether you can pay your bills this month. A business can be profitable and still fail if it runs out of cash.
Look at both, regularly. A monthly look at your profit and loss, plus a simple cash flow forecast, covers most of it.
How Purpl helps
- Profit and Loss, Balance Sheet and Cash Flow statement, for any period, kept up to date as you invoice, record bills and record payments.
- See profit become cash. Purpl's Cash Flow statement has an indirect view that starts from your net profit and shows, line by line, what changed it: money customers still owe, bills not yet paid, stock, and more.
- Dashboard showing cash in, cash out and net cash flow, and how much customers owe you, current and overdue.
- Ask Purpl AI "how much profit did I make this year?" or "what's my cash flow this month?" and get a plain-language answer.
