Cash flow / Adelaide businesses
Why your business shows a profit when the bank balance is low
A profit report and a bank balance answer different questions. Profit looks at income and expenses for a period. Your bank balance shows the cash available at one point in time. A profitable Adelaide business can still have a difficult week when payments arrive late and bills fall due.
Start with when customers pay
Under accrual accounting, income can appear in your profit report before the customer pays. If an invoice is still unpaid, the sale may improve the reported result while adding nothing to the bank balance yet. Cash-basis reports can work differently, so first check how your report is prepared.
Review the unpaid-invoice list. Which amounts are overdue, disputed or waiting on a progress payment? An old invoice should not be treated as a certain receipt in a forecast.
| This month | Profit effect | Bank movement |
|---|---|---|
| Invoice issued, customer has not paid | +$12,000 | $0 |
| Operating costs paid and expensed | −$8,000 | −$8,000 |
| Combined effect of these two items | +$4,000 | −$8,000 |
Illustration only. This simplified accrual example assumes no GST, opening balances, depreciation or other transactions. It is not client data or a forecast.
Look beyond the profit report
Cash also moves for reasons that do not appear as an ordinary expense in the same period. Buying equipment, paying down the principal of a loan or taking money from the business can reduce the bank balance. Stock purchases and older supplier bills can also create timing differences.
Ask your accountant to explain the treatment of larger or unusual items. Avoid trying to force the profit figure to equal the change in your bank account.
Make a short cash plan
List your available opening cash, the receipts you realistically expect and the payments you have committed to. Use the dates money is likely to move. Make uncertain receipts visible and test what happens if they arrive later.
A rolling weekly plan can be useful when cash is tight. A monthly view helps with larger decisions and seasonal changes. Update either when the facts change; a forecast is an estimate, not a promise.
- Review unpaid invoices and expected payment dates.
- List wages, supplier bills, rent and other commitments.
- Include loan payments, equipment purchases and planned owner withdrawals.
- Use a consistent basis for GST and explain it on the report.
- Compare the forecast with actual cash movements and follow up large differences.
Use the reports together
Read the profit and loss statement, balance sheet and cash view together. The profit report helps explain trading results. The balance sheet shows amounts owed and other balances. The cash view helps you plan payments.
srwn can help organise the records and prepare management reports or a cash-flow forecast. We agree the work first and work with your registered tax adviser on tax matters.
Sources and further reading
This guide is general information. Your records and arrangements need their own review. Registered partners or your existing tax agent provide BAS and tax services.