Not enough in the bank for wages, suppliers or taxes, even though the profit and loss statement shows a profit? This can happen in a profitable company too. To understand it, you need to look at what else is going on beyond the profit and loss statement.
The question “where did the cash go?” can often be answered quite specifically: it is in receivables, in the warehouse, in assets you have bought, or it has already gone to settle liabilities. The test below is not an assessment of your company's financial position, but it helps you start looking for the cause of the shortfall.
Where is your company's cash right now?
Answer all six questions. Cash can be stuck in one place or in several at once – the conclusion will show you where to start.
Are receivables growing, or are some customers paying late?
The list of receivables is in your accounting software. Count work completed but not yet invoiced as well.
Is there stock in the warehouse that has not sold for a long time, while new stock is still being bought?
No stock? Choose “No”.
Have you recently bought fixed assets out of cash built up in the company's account?
Equipment, a vehicle or premises – not on leasing or a loan, so the whole sum left at once.
Do you have significant advances to suppliers, deposits or prepaid expenses?
The money has been paid, but you have not yet received the goods or the service.
Has the company repaid loans or paid out money to its owners during the year?
Loan principal, dividends or repayment of a loan from the owner.
Do you know how much cash you will receive and how much you will have to pay in the coming weeks?
By the date customers are realistically likely to pay, not the contract date.
0 of 6 answered. The conclusion appears once you have answered every question.
A rough assessment based on your answers and the information available on 19 October 2026 – not advice. Your answers are not stored or sent anywhere.
The cash hasn't vanished – it is in six places
Profit is not your bank balance. In accounting, income and expenses are recognised not when cash is received or paid, but when they are earned and incurred (the accrual principle). On top of that, some of a company's payments do not become expenses straight away. So the cash may have gone on goods, equipment or repaying a loan while the statement still shows a profit.
So where does a company's cash get held up?
In receivables. The goods have been sold or the service delivered and the income has been recorded, but the customer has not yet paid. If you give them 30–60 days to pay, your company is financing their purchase for that period.
The problem is bigger still when payments are late. In a service business the gap can open even before the invoice is issued, if the work takes a long time and is only paid for once the whole project is finished. Watch out too for cases where suppliers are paid before the customers' money arrives – that stretch of time has to be financed from somewhere.
In slow-moving stock. The goods have been paid for, but they are still in the warehouse. Until they are sold, their cost normally stays in stock, so the purchase itself does not yet mean an expense of the same size in the profit and loss statement.
This is how a company can show a profit on the goods it has sold and still be short of cash, because a good part of it has gone on other goods not yet sold.
It is especially important to separate stock that sells slowly from stock that will no longer sell at its usual price. Outdated, out-of-season or no-longer-wanted goods may also need to be written down in the accounts.
In investments in fixed assets. The company has bought equipment, a vehicle or another fixed asset. The money has left the account, but the full purchase price does not normally become an expense at once – it is recognised gradually through depreciation.
The investment may be necessary, but if it was paid for out of the money meant for day-to-day operations, there may be nothing left for the usual payments after the purchase.
In advances and prepayments. Advances to suppliers, services paid for in advance and deposits also reduce the free cash balance. The company has not yet received the goods or the full benefit of the service, but it can no longer use the money. A refundable deposit is not an expense at all – it is a receivable until it is returned.
In loan repayments and payouts to owners. Repaying the principal of a loan reduces the cash balance, but it is not an expense in the profit and loss statement. Only the interest counts as an expense.
The same goes for dividends or repaying a loan the owner made earlier: the cash is paid out, but the operating profit of the current period is not reduced by it as such.
In financing a growing business. More orders can mean more goods, materials and labour costs before the customer settles. So a growing, profitable company may find its need for working capital keeps rising.
An example from practice
For example, a company started the period with €10,000 in the bank and earned €20,000 in net profit. Over the same period receivables grew by €12,000, stock by €8,000, €6,000 was paid for equipment and €3,000 of loan principal was repaid to the bank. Depreciation of €2,000 is included in the profit. Nothing else changed: the figures are without VAT, payables to suppliers and advances stayed the same, taxes were paid in the same period, the equipment was paid for in full at once, and there were no new loans or dividends.
| Cash in the bank at the start of the period | €10,000 | |
|---|---|---|
| + | Net profit | €20,000 |
| + | Depreciationreduced profit, but no cash was spent | €2,000 |
| − | Increase in receivables | €12,000 |
| − | Increase in stock | €8,000 |
| − | Paid for equipment | €6,000 |
| − | Loan principal repaid | €3,000 |
| = | Cash in the bank at the end of the period | €3,000 |
The company earned €20,000 in profit, and the cash in the bank fell by €7,000. Operations brought in €2,000 (20,000 + 2,000 − 12,000 − 8,000), the investment in equipment took €6,000 and the loan repayment €3,000.
What to do once the cause is clear?
If the cash is in the warehouse – review your stock. Find out what is not moving and why: demand has dropped, the price is wrong, too much was ordered or the range has changed. Choose the action to match the cause: a targeted sale, selling in bundles, another sales channel or returning the goods to the supplier if your agreement allows it.
Sometimes a smaller margin helps free up cash, but the size of the discount needs weighing up. At the same time it is worth cutting back new purchases of slow-moving goods, so that the stock you sell off is not immediately replaced by other goods that will sit just as long.
If the cash is with your customers – manage collections. Sort receivables by due date, put one person in charge and get in touch with the customers who are late. Find out whether payment is being held up by a dispute, missing documents or the customer's own financial difficulties.
For new orders, consider shorter payment terms, advances, part-payment by stage of the work and credit limits for customers. Issue invoices on time. A discount for prompt payment can help too, as long as its cost does not leave the margin too thin.
If the cash has gone into investments – review how they are financed. Before the next big purchase, work out how much will be left for day-to-day operations. For assets used over many years, a long-term loan or leasing may be a better fit. If the asset has already been bought and cash is short, it is worth discussing possible changes to the financing with your accountant and your lender.
If the payment schedule is squeezing you – align the dates. Agree longer or staged payments with suppliers in advance. Negotiate advances and stage payments with customers. Before any payout to owners, check whether the company will still be able to meet its upcoming obligations afterwards.
When can factoring or a loan help?
When cash is short because you are waiting for customers to pay, you can consider factoring – financing against eligible invoices issued to your customers. It lets you receive part of the money earlier than the customer's agreed payment date. What is available depends on your customers, the invoices and the financier's terms. You need to weigh up the factoring fees and interest, and who carries the risk if the customer does not pay.
For a temporary shortage of working capital, a credit line or a working-capital loan may be suitable. Before borrowing, it is important to work out the size of the gap, how long it will last and which receipts will repay the financing.
Financing can help you bridge the wait for customer payments or fund growth. But if the cash shortage keeps coming back because of unsellable stock, loss-making orders or debts that are never recovered, the cause itself has to change as well.
Frequently asked questions
Does depreciation save cash? No. Depreciation is the cost of an asset paid for earlier and moved into expenses gradually; the cash left the account at the time of purchase. That is why, in the example, it is added back to profit.
Does repaying a loan reduce profit? No. Repaying the principal reduces the cash balance, but it is not an expense in the profit and loss statement. Only the interest reduces profit.
Is a rental deposit an expense? No. A refundable deposit is not an expense but a receivable: it does not reduce profit, but you cannot use the cash until it comes back.
Where to start?
The first practical step is to draw up, together with your accountant, a cash plan for the coming weeks: how much you have now, what receipts you expect and when you will have to pay. Plan customer receipts by the date they are realistically likely to pay.
Then you can establish how much cash is missing, when it will be needed and what actions will narrow the gap. The plan must be updated regularly against actual payments.
As the director and partner of an accounting firm, I recommend doing this analysis with your accountant or coming to us. We provide consultations on financial management: we analyse the situation and give you our conclusions and recommendations.
If your statements show a profit but the bank account is short of cash, write to us or send an enquiry through the website. Let's start with a specific question: where is your company's cash right now?