I’ve often seen founders confused by one situation in particular.
The business is doing well.
Revenue is growing.
The profit number looks healthy.
And yet, cash always feels tight.
This usually comes as a surprise. On paper, everything looks fine, but the bank balance tells a different story. The reason is simple: profit and cash flow are not the same thing.
Profit and Cash Are Not the Same Thing
Profit is an accounting outcome. It is calculated on an accrual basis – revenue and expenses are recorded when they are earned or incurred, not when cash actually moves.
Cash is far more straightforward. It is the money actually sitting in the bank.
A business can look profitable even though the money hasn’t actually come in yet. This gap becomes more noticeable as the business grows and day-to-day operations increase.
Delayed Customer Payments Are the Biggest Cash Issue
In most cases, cash flow problems have nothing to do with losses. They happen because of timing.
Revenue gets recorded when an invoice is raised, but cash comes in only when the
customer actually pays.
Let me explain this with a simple example.
- An invoice of ₹50 lakh is raised to Client A in April.
- The payment terms are 60 days.
- April’s P&L shows revenue of ₹50 lakh.
- But no cash is received in April.
So, from an accounting point of view, April looks like a good month. But from a cash point of view, nothing has come in yet.
At the same time, salaries have to be paid, vendors need to be cleared, rent goes out, and statutory payments fall due in April. This gap between money going out and money coming in is where cash pressure quietly starts building.
Advance and Prepaid Expenses Reduce Cash Immediately
Another common reason for cash pressure is advance or prepaid expenses.
Businesses often pay upfront for software subscriptions, conferences, marketing tools, or annual services. When these payments are made, cash goes out immediately, even though the expense is spread over several months in the books.
Example
- An annual software subscription of ₹12 lakh is paid in April
- Only ₹1 lakh is charged as an expense in April’s P&L
So, while the profit impact for April is just ₹1 lakh, the bank balance reduces by the full ₹12 lakh in the same month.
This is where confusion usually sets in, especially when founders rely only on profit numbers to judge performance.
Growth Itself Can Put Pressure on Cash Flow
Growth is usually seen as a good thing, but it often puts pressure on cash.
As businesses grow, they start hiring more people, working with more vendors, and
spending more on sales and delivery. These costs usually go out immediately, while
collections take time.
Because of this, even a profitable and growing business can feel constant cash pressure if the timing of money coming in and going out is not managed carefully.
What Helps in Practice
From what I’ve seen, the solution is usually not complex models or fancy dashboards.
What really helps is basic discipline and regular visibility into cash.
A simple weekly cash flow view can make a big difference. Something that clearly shows:
- what customer payments are expected
- what payments need to be made
- what cash actually moved during the week
- and what caused the variance (the difference between what we expected and what
- actually happened)
Along with this, having clear visibility on receivables and thinking about the cash impact before committing to new spends helps avoid most surprises.
Key Points to Remember
- Profit does not mean cash is sitting in the bank.
- Most cash problems come from timing, not from losses.
- Upfront payments and delayed collections slowly reduce cash.
- Regular visibility into cash flow helps prevent surprises.
Nupur Sharma Babbar 