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You haven't done anything wrong. You're watching one number and the problem lives in another.
The profit and loss looks good every month. Sales are up. So why is there nothing in the bank?
Profit tells you whether the work you've done is worth doing. Cash tells you whether you can pay for it while you wait.
If you are watching the first one closely and barely glance at the second, that will work fine until you grow. Then it stops working, and usually quite suddenly.
The money isn't missing. It's tied up in your debtors, sitting in invoices you've raised and haven't been paid for yet.
Let's say you invoice a customer £10,000. Good work, good margin, nothing wrong with the job.
Your terms say 60 days. They pay at 90.
During those three months you've paid your staff, you've paid the rent, you've paid your suppliers. If you sell goods rather than services, you bought the stock before you could sell it at all, so £5,000 went out before a penny came in.
One invoice like that might be manageable. Four or five running at once and you're carrying a serious financial burden, purely because the money leaves faster than it arrives.
That's a cash flow problem sitting inside a perfectly healthy business.
Two things matter here. How big your debtor book is, and how old it is. Sales going up while debtor days go up too isn't growth. It's you lending money to your customers, interest free, without having agreed to.
Check both monthly. If your bookkeeping is current it takes ten minutes.
Everyone's advice is the same. Chase harder. Send reminders. Get on the phone.
Fair enough, but it accepts your terms as fixed, and they aren't.
Thirty days is standard. Standard isn't the same as right. If your business needs the money sooner, set seven day terms and start chasing at fourteen. Some customers will push back but plenty won't, because most people pay when they're asked to, and nobody ever asks.
Your terms are a decision you get to make. Treat them like one.
This is the part that catches people out at exactly the wrong moment. The balance in your account isn't your money. Some of it belongs to HMRC. VAT if you're registered. Corporation tax on your profits. PAYE on your team.
It sits there for months looking like income. Then the bill lands.
The fix is dull and it works. Every time an invoice gets paid, move the tax element straight out into a separate account or a pot. Do it the same day, before you've had chance to think of it as spending money. Over save rather than under save, because being pleasantly surprised beats the alternative.
None of this works without current records. If your bookkeeping is three months behind, you're guessing at your own tax bill, and guessing is how people end up short.
Want to go further into what's actually yours to take? We've written about that here: How much money can I really take from the business?
Sometimes the warning signs go unnoticed. You're busy doing the work, and the corporation tax bill arrives, or an unexpected invoice lands, and suddenly it's a problem rather than a worry.
Don't bury your head. That's the only genuinely bad option.
There's often more room than people expect. Improving how the cash moves through the business. Changing terms. In some cases introducing you to a broker for short term funding while you rebuild the habits that stop it happening again.
The embarrassment is the expensive bit. We've seen far worse than whatever you're sitting on, and every month you wait makes it harder to fix.
If your business is profitable and the cash never seems to be there, that's a solvable problem, and it's a much easier conversation now than after the bill lands.
Get in touch and we'll look at the numbers with you: carthyaccountants.co.uk/contact
