Why Profit on Paper Doesn’t Always Mean Money in the Bank

The Cashflow Confidence Gap

“We made £20k profit last month, so why can’t we pay this VAT bill?”

If you’ve ever said something like this, you’re not alone. Many agency owners see healthy numbers on paper… and still feel stressed when payday rolls around. It’s one of the most confusing (and frustrating) financial experiences for growing agencies.

This article will break down why this happens, what profit really means, and how to take control of your cash, not just your P&L.

What Profit Really Means

On your Profit & Loss (P&L) report, “net profit” is the money left after all income and expenses are recorded.

But, and it’s a big but, that number doesn’t:

• Account for taxes

• Reflect client payment delays

• Include director drawings or loan repayments

• Show what’s happening with your bank balance

So you can be “profitable” in theory and still feel broke in reality.

Why Agencies Feel the Profit-Cash Disconnect

Let’s explore common reasons:

1. Payment Timing Lags
You invoice a client in March for £10k. It appears as revenue. But they don’t pay until May, and meanwhile, your team and tools still need paying.

2. Tax Isn’t Planned For
Profit figures often ignore the looming tax bills (corporation tax, VAT, PAYE). If you’re not setting aside tax monthly, that “profit” will disappear fast.

3. Owner Withdrawals Aren’t Reflected
If you’re taking drawings from the business without planning them in your forecast, you’ll drain cash despite showing strong profit.

4. Loan or Asset Payments Are in the Background
Loan repayments, asset purchases, and director loans affect cash but aren’t on the P&L.

5. There’s No Real Cashflow Forecast
Many agencies run their business by bank balance. But without a 12-week cashflow view, you’re constantly caught off guard.

Example: The £20k Profit That Disappears

Let’s say your March report shows £20,000 profit. But then:

• £5,000 VAT is due

• £7,000 of that profit is from unpaid invoices

• You withdraw £3,000 for yourself

• £2,000 goes on a loan repayment

➡️ That’s £17,000 gone before you even see the cash.

How to Solve the Problem

1. Run a Rolling 12-Week Cashflow Forecast
See what's coming in, what’s going out, and what’s left. Every week, update it. Use tools like Float, or even Google Sheets.

2. Set Up Separate Bank Accounts
Split your income into:

• Operating expenses

• Tax savings

• Profit account This avoids mixing up “available” cash with earmarked cash.

3. Review Payment Terms and Chasing
Slow-paying clients? Implement automated reminders and payment incentives. Cashflow thrives when clients pay quickly.

4. Build a Buffer
Aim to hold 1–2 months of overheads in a cash buffer. It gives breathing room and confidence.

5. Work With a Finance Partner Who Gets Agencies
Most general accountants won’t highlight these disconnects. Work with someone who actively helps you forecast, plan, and optimise.

Final Thoughts: Cash Is the Lifeline

Profit is theory. Cash is reality.

You don’t need to feel stressed or surprised every month. With the right systems and visibility, you can understand and control the flow of money in your business.

It’s time to stop guessing and start planning.

Want help building a cash system that gives you clarity and confidence? Let’s talk about how we can set this up for your agency.