Profit and bank balance describe different aspects of a business. Revenue can be recognised before customers pay, while stock purchases, investment and debt repayments can consume cash without appearing as an immediate expense of the same amount. When the accounts show profit but the bank account feels empty, build a bridge between the two before deciding that either figure must be wrong.
Start with a reconciled opening cash balance and the period's result. Identify movements in customer debt, supplier balances, inventory and other operating items. Then add investment, financing and owner transactions separately. The purpose is to explain actual cash movement with categories management can investigate. Keep tax payments visible so a periodic settlement does not disappear into an unexplained residual amount called other expenditure.
Review receivables by collection expectation, not merely by invoice date. A growing balance may reflect expansion, slow customers or disputed bills. Examine supplier timing too: postponing payment can temporarily support cash while increasing future pressure. Stock needs its own review because goods purchased for growth may remain unsold. Distinguish these timing effects from an underlying business model that consistently consumes more cash than it generates.
In a hypothetical furniture importer, the year is profitable but a new product range absorbs cash in inventory and customer credit. The bridge shows those two uses of funds separately from the operating margin. Management can then examine order size and payment terms. Increasing sales without changing those conditions might deepen the cash gap even if the additional orders remain profitable on paper.
Move from explanation to a forward cash forecast using realistic receipt and payment dates. Include known commitments and identify assumptions about collections. Test what happens if a major customer pays later. Avoid treating unused borrowing, a possible capital contribution or an unapproved payment arrangement as certain funding. Show those items as options until their availability and conditions are confirmed by the relevant parties.
A useful output combines the historical bridge, near term forecast and actions assigned to named people. It may reveal a collection issue, excessive inventory or investment requiring different financing. A cash review can help identify the cause before selecting a remedy, allowing the business to distinguish a temporary timing gap from a recurring weakness that calls for operational changes.