Why do I have profit but no money?

Both numbers are right, and that is the difficult part

If your profit and loss says you made 40,000 last month and the bank says you have 6,000, nothing is broken. The two figures were never supposed to be the same, and a shop that expects them to match will distrust whichever one it likes less — usually the profit, which is the one it needs.

The habit worth building is not choosing between them. It is being able to say, in one sentence, where the difference went. In a healthy shop you can always point at it. When you cannot, that is the signal — not the gap itself.

What each one is actually counting

Profit counts a sale on the day you make it, whether or not the customer has paid. It subtracts what those particular goods cost you, whether or not you have paid your supplier. It is a statement about trading: did selling this month's goods, at this month's prices, leave anything over.

Cash counts what is in the till and the bank right now. It does not care what the money was for. Paying a supplier for goods you sold three months ago moves cash and does not touch this month's profit; selling on thirty days moves profit and not cash.

So the question is never "which is true?" Both are. The question is which one you need this morning, and the answer is: profit to decide whether the shop is worth running, cash to decide whether you can pay for Friday.

Where the money went — four places, and you can look at each of them

Profit that has not turned into cash is almost always sitting in one of four places. Each has a report, and it is worth learning to check them in this order.

• On your shelves You bought goods and have not sold them yet. That money is real and it is stock. Buying heavily in a good month is the commonest reason a profitable month leaves no cash, and it is not a mistake — but it is a choice, and it should be one you made on purpose.
• With your customers You sold and were not paid. Profit counted the sale; the money is with somebody else. The list of who owes you, oldest first, is the report for this, and it is the one that most often surprises a shopkeeper.
• In a cheque not yet due A cheque with a future date is money promised, not money held. It is a receivable until its date, and if you have several, the total can be large enough to explain the whole gap on its own.
• Gone on something that was never an expense Repaying a loan, buying a van, taking money out of the business for yourself. None of these reduce profit — the loan repayment settles a debt, the van is an asset, and money you take out is money the business now owes you. All three move cash and none of them appear in the profit figure.

And one difference that is timing rather than money

There is a fifth reason, and it is not about where money went at all. The cost of what you sold is recognised once, when you close the month. Until you do, the goods you sold are still counted at full value on your books, so profit reads higher than it will once the month is closed.

That means a mid-month profit figure flatters you, and a shop that never closes a month never gets the honest one. It corrects itself the moment you close — and it is the reason the profit figure can move after you have stopped trading for the month without anybody having changed anything.

Reading it in the right order

Start with cash: how much is there, right now, across the till and the bank. That figure counts money you HAVE and nothing else — no cheques, no promises.

Then look at what is coming: the cash forecast puts every unpaid invoice and every cheque on the week it is actually due, and shows what is already overdue in a bucket of its own. Overdue money is not in next week's figure on purpose — late money may never arrive, and folding it in would give you the more flattering number and the less honest one.

Then the profit and loss, for the month, after closing it. Read in that order the gap usually explains itself before you have to go looking: you will already have seen the receivables and the cheques on the way past.

The habit

Once a week, look at cash and at who owes you. Once a month, close the month and read the profit and loss. That is the whole rhythm, and it takes about twenty minutes.

The thing to watch for is not a gap. It is a gap that GROWS while profit stays healthy — three profitable months in a row with less money at the end of each. That pattern has exactly one meaning: profit is going somewhere and staying there, and it is nearly always stock you are not selling or customers who are not paying. Both are fixable, and both get more expensive the longer nobody names them.