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Join for freePosted: Fri 10th Jul 2026
Many business owners assume that if their business is profitable, cash flow will naturally take care of itself.
Unfortunately, some of the most profitable businesses still experience cash shortages, struggle to pay suppliers and find themselves under pressure when tax bills arrive.
In this practical Lunch and Learn session, Trevor Williams explains why profit and cash flow are very different, the most common causes of cash flow problems and practical steps you can take to improve financial visibility and avoid costly surprises.
Why profit doesn't always equal cash
The biggest causes of cash flow problems
Practical ways to improve financial visibility and control
Trevor is the founder and director of Definitive Accountancy Limited. For more than 25 years, he's helped business owners gain financial clarity, improve profitability and make better decisions.
He specialises in supporting manufacturing, engineering and owner-managed businesses through financial planning, cash flow forecasting and strategic business support.
As the creator of the Definitive Virtual Finance Office (VFO), Trevor helps business owners move beyond compliance and use their financial information to drive growth, improve performance and build stronger businesses.
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Lightly edited for clarity.
Caitriona: Hello, everyone, and welcome to today's Lunch and Learn. My name is Caitriona, and I'll be your host today.
For those of you attending a Lunch and Learn for the first time, Enterprise Nation is a vibrant community platform for start-ups and small businesses.
I'm pleased to introduce Trevor Williams, who's the founder of Definitive Accountancy.
In this session, Trevor will explain why profit and cash flow are very different, the common causes of cash flow problems, and practical steps you can take to improve financial visibility and avoid costly surprises.
If you have any questions throughout the webinar, please post them in the chat, and we'll do our best to answer them at the end of the session.
Today's webinar will be recorded, and we will send a follow-up email with the recording and further resources later today. Over to you, Trevor.
Trevor: Thank you. Good afternoon, everybody. Thank you for taking the time to join me on this particularly hot day. We were in danger of doing this webinar with no top on and, to be honest, nobody wants that.
I'm the owner of Definitive Accountancy, which is based in Birmingham. I've spent over 25 years in the accountancy sector, dealing with all types of clients, from very small businesses to multimillion-pound turnovers.
The one thing we can say is that nothing is the same for any business. However, one thing that comes up time and time again is cash flow.
So that's what we're going to talk about today.
When I first started out, we used handwritten cash books, Kalamazoo ledgers, journal pads and manual processing. That meant a lot of writing and a lot of manual work.
Today, we've got cloud accounting, banking apps, artificial intelligence and real-time reporting.
So while the technology has changed over the years, the fundamentals still remain the same.
Theoretically, we should be able to use the technology we have today to make decisions far faster. However, that is not always the case because you generally need to have a very good system.
What we're going to discuss today isn't about reinventing the wheel. It's just some practical tips, bits of advice and things that can help people get out of certain predicaments.
Sometimes, you just need reminding of these things.
Profit and cash flow are very different.
Sales less all your costs is basically how profit is recorded. It's at a particular point in time. It's an accounting measure. It shows actual performance based on historical information, and it looks backwards.
Cash flow is completely different. It's the money moving in and out of your business. It's cash in the bank. It shows liquidity and helps you look ahead.
Profit tells you whether you've made money. Cash flow tells you whether you can keep trading.
One question that will probably come out of this is: can you still have a loss-making business and good cash flow? The answer is yes.
Take, for example, if you were to take a £250,000 loan. That money hits your bank account straight away, so it appears that your cash flow is going to be good for quite some time. However, your day-to-day trading could still mean that you're in a loss-making situation.
Another example is if you have a customer who pays large deposits before you actually start the work. Again, the cash flow is great because the money is there. It will start to dwindle when you start paying suppliers and other costs.
One example I have is from working with a lot of manufacturers.
The issue they have is that they're constantly telling me: "Yes, Trevor, my books look great. I've got this much work coming in. I should be making lots and lots of profit."
However, the problem is that many of these trades, and you might have this yourself, invoice for the work but their customer is on 60-day terms. Within that time, you've still got to pay your staff, your suppliers, your rent if you don't own the building, or the mortgage if you do. You've got to pay for your software. You might have a VAT bill that comes in.
While that invoice or profit has been recorded, say you invoiced in June, once that's been recorded in June, it makes your June accounts look great. However, for cash flow purposes, it's not so good, because the payments I've just listed still have to go out.
So you may send the invoice, then look at your bank after everything has gone out and realise it's too small. It creates an issue.
That is part of the difference between profit and cash flow.
Profit is recorded previously. You could have invoiced on the first day, but the cash doesn't get received until later on, which generally means that your cash flow is not in a very good position.
Another question that might be asked is: which is more important, cash flow or profit?
In an ideal world, you'd love to have good profits and great cash flow. It doesn't always work out like that, but that's what we try to do.
Let's move on to the main reasons why businesses run out of cash.
The biggest bugbear tends to be late-paying customers. I'm sure everybody has had them. You've invoiced somebody, you're constantly chasing them, and they don't appear to be in any rush to pay you.
As a result, as previously mentioned, you still have expenses that need to be paid. Suppliers still need paying. You still have to pay wages. You still might have VAT. You might have unexpected amounts that need to be paid.
One thing I will advise with late-paying customers is that it used to bother me somewhat. You would do the work for somebody, invoice them and be fully entitled to that money, but you would feel a bit aggrieved or not particularly nice having to chase them up for the money you're owed.
My advice is to nip that in the bud as soon as possible, because it will create problems later down the line.
If you have the time, another suggestion I would make is to grade your customers.
If you're in a service field where you don't actually see the customers and customers pay on time, it's kind of irrelevant. But if you run a business and you know your customers, a good idea is to give them a simple A to F grade.
Part of this could be how quickly they pay, how well they pay and whether you have to chase them to get payment.
Another reason businesses run out of cash, and it does sound weird, is growth.
Obviously, when you're trying to expand your business, in the long term you're projecting for higher profits, which is absolutely a great thing. But in the interim, growth comes at a cost.
You may have to employ new staff. That's a new cost to the business. You might have to buy equipment, which is another big cost. You may need to buy stock.
You're trying to grow the business, but ultimately it comes at a cost. It affects your cash flow.
Another one that always creeps up is tax. When you do your sales, people generally know when tax returns come in. They know when VAT bills come in, but often they do not account for it.
I'll share some information on how you can remedy that.
Another reason you might run out of cash is loan repayments. You might have to take out a loan to make your business run, but in the long term, you still have to make those repayments back, which will affect your cash flow.
The final reason listed here is that your margins might be so small that you literally feel like you're having to scrimp and save every single month. You don't have the option to inject lots of cash, so you might potentially run out of cash.
There are five practical things I would recommend. I'm not saying these will save you all the time, but they could be helpful.
As soon as you've done some work for somebody, invoice them straight away. Don't think about it. Just get the invoice done and sent out immediately.
One thing I used to do was try to get my invoices tied up throughout the week. The problem with that is that sometimes, if you're working from scraps of paper, or you're busy doing lots of other things, you'll completely forget.
So even if you want to take a note that you've got to invoice somebody and do it all on one particular day, that's great. But make sure you invoice as soon as possible because, theoretically, the sooner you invoice, the sooner the money should come back.
As previously discussed, chase overdue invoices. Like I said, I used to feel a certain way about contacting people to get my money. But fortunately, we now have AI tools like ChatGPT.
If you're chasing a customer, you can type into there and ask it to help you chase a customer in a nice kind of way. It will give you a nice email prompt. You can do it that way. But always chase overdue invoices.
Sometimes it might sound harsh, but if clients or customers are not paying their invoices on time and you continue to do work, you might have to stop.
There is absolutely no point in continuing to do work for somebody if you're not going to get paid. You could be spending that time dealing with other customers and getting that money in.
Another practical thing I'd recommend is to forecast your cash.
We have software like Xero, QuickBooks and FreeAgent, and they're all great. It's way better than when I first started out.
You can do budgets. In fact, I know for a fact that some banks or banking apps can project what your forecast will be for the next month based on the transactions that have happened previously.
If you've got a banking app that does that, great. But really spend the time to forecast your cash because it generally will help you.
Another thing I'd recommend is to put aside money for tax.
This goes back to VAT, where you know you're making sales invoices and you know the money is supposed to be coming in. But when three months have gone and you've got to do the VAT return and pay the VAT or PAYE, there's no money left because you've spent it on something else.
One suggestion, and this is one I personally use, is to set aside 20% of any invoice that you give. It should generally cover any potential tax that goes out.
Another practical thing I'd recommend is to build a cash reserve. It's basically rainy day money.
You'd probably do this in your personal life as well. Perhaps the cooker might blow up, the fridge freezer stops working, and it's always a bit of a pain if you can't fix that because there is no money left.
You've got to treat the business in the same way. Set aside some money and just have it there in case something happens.
For example, you could go into the office one day and there's been a fire. Granted, the insurance may cover it, but they're not going to pay out immediately. So it's always a good idea to have some reserve money there for a rainy day.
I have a little methodology with my practice. Monday to Thursday is pure work. Friday is for thinking and doing various checks.
This is something you could do. It won't take you a long time. You don't need amazing software to do it either. Get yourself a pen and a piece of paper, or a little Excel spreadsheet if you're comfortable with Excel.
These are the things you ask yourself.
How much is in the bank? You can open your banking app and find out your balance at any particular point. It's not like the old days where we had to physically go to the high street, get a printout and work it out from there.
Also, you should have a good idea of your business. What money is expected over the next four weeks? What money is going to be paid out? You can always forecast for four weeks.
If you're in a business where you know what stock you've got to buy and which suppliers you're buying from, you should also know your wages, rent and various other expenses. This is something you can absolutely put in the forecast, which will help you down the line.
What payments are due? This could be things like loan repayments or any potential tax liabilities.
Again, you can put this in your forecast. The idea is that you know what's there and you know what's going out. From that, you can adjust and realise what your cash flow situation is going to be like.
Check if you've got any VAT, PAYE or corporation tax coming up. Again, if you use an accountant, they should be able to give you that information. It's very readily available now.
From my experience, as soon as we've done a VAT return, we let the client know what their liability is. It's exactly the same for PAYE. It's all real-time information, so you assume that your accountant is going to do a good job and make sure that this information is correct for you.
Another thing you should check on Fridays is which invoices haven't been paid.
You might have the difficulty where customers are not paying you, but you might be a person like me who absolutely has to pay your invoices on time because it just doesn't sit right with you.
So check which invoices haven't been paid. You should be able to use your cash flow forecast to find out when you'll be able to afford those as well.
Again, you're making projections for the future, which will absolutely come in handy for you.
Another thing to check is whether there are any major costs on the horizon.
You might be in manufacturing and need to buy new equipment, a new machine or something like that. If you don't have any knowledge that this is coming, you're setting yourself up for a difficult time.
This shouldn't take you long. It should take about 10 or 20 minutes, and you don't have to do it on a Friday. You could do it whenever you've got the time. You could get up on Saturday morning if that's your thing.
So really spend the time to think about this.
From today, there are three things I would like you to remember. Profit isn't cash. Profit is the money made at a specific point in time.
For example, you invoice £10,000 on 1 June. You spent £4,000 on everything outgoing. Your profit is £6,000. But that's £6,000 profit at that point. You may still have other expenses that affect your cash flow.
Cash flow problems very rarely happen overnight. They're usually a build-up of multiple things: customers paying late, growth, VAT becoming due, stock levels that need to be bumped up and various other things.
Small improvements made consistently can make a big difference.
So this goes back to having a little cash flow check every Friday and making sure you know what's coming in and what's going out.
That's been it. I know it's only been 20 minutes, so thank you for spending the time with me today.
This was my very first Enterprise Nation webinar, so excuse the nerves. I hope you've taken away some useful information.
If you've got any questions, I'll be happy to answer them.
Caitriona: Thanks so much, Trevor. Please keep your questions coming. I can see that we've had a few come through.
Let me start with this question from Howard. Howard is asking: "If I have a good profitable business, but I'm running out of cash to pay my suppliers, at what point do I say I've gone bust? Can I carry on trading through it?"
Trevor: If you've basically satisfied everything that you can do in terms of getting further loans and things like that, it's a point in time.
It's not for us to dictate when you stop trading. If you're feasibly insolvent and you have no money and can't pay them, then at that point, that's when you say: "OK, I can't pay these. I'm going to have to go insolvent." It's really that simple.
But before that happens, there are lots of lenders and lots of ways and means. I think even the banks do it now when they can see you're in a particular situation.
Naturally, they want the business to carry on. They'll do everything in their power to keep the business going because it helps boost the economy and might keep people in jobs.
So exhaust anything you can to keep your business running. But if you're insolvent, then unfortunately, that's the nature of it.
Caitriona: Thank you. The next question is from Padma, who's saying: "Good morning from Oxford. What strategy should I follow if customers fail to pay money for work done, for example after loss of a job?"
Trevor: It sounds harsh, but if any job is over £250 and they're flatly refusing to pay, go to the small claims court. It does cost you something, but it sets a precedent.
For example, if that customer knows somebody else and they employ them to do a job, there's just a little thing that goes around. It's like: "We'll get such and such to do the work, and we're not going to pay."
You have to be a bit harsh. Theoretically, it's your money. You've worked for it.
Anything over £250, go straight to the small claims court.
Caitriona: Thank you. The next question is from Leo. They said thank you for your presentation, and they're asking: "What should be taken into consideration if your business is a commission-based trading business with fixed commission rates?"
Leo, if you want to add some more context in the chat, we'll come back to that one.
In the meantime, another question is: do you have any tools or software that you recommend for improving cash flow visibility?
Trevor: There are a lot out there, and I'm not going to say that I prefer one over the other.
There are tools like Xero. I think everyone knows that. We've seen the adverts. QuickBooks is the same. FreeAgent as well.
You could do a quick Google search. There may even be relatively cheap software that costs £9 or £10 a month, where you put your invoices and information in and it will produce various cash flow reports.
Generally, Xero, QuickBooks and FreeAgent are the big ones.
Caitriona: Thank you. I guess another question is: how can a business tell if they have a cash flow problem or a profitability problem?
Trevor: A cash flow problem, the first thing you should be able to do is check your bank and see if you've got any money in there.
A profitability problem goes back to profitability only being at a set point in time.
You will know what you've done in the past. If you've made a profit, you'll see that. If it's positive at the end of the year, it's positive and you've made a profit. You haven't got a profitability problem.
That's the shortest and sweetest answer I can give to that.
Caitriona: Brilliant. Thank you. We're going towards the end of the session, so if anyone has any additional questions, please do pop them into the chat.
Another question here: what's the biggest misconception business owners have about profit versus cash flow?
Trevor: That's a good question. The biggest misconception, again, goes back to the point in time. Profit is only there at a point in time. Cash flow is noticeable most of the time.
You generally only ever know your profits by working backwards from the point at which they've happened.
With cash flow, there are indicators. If you can't afford to pay suppliers, you haven't got any money in the bank, customers are slow paying and things like that.
That's the reason I gave certain steps and things to do to make sure that this doesn't happen.
Caitriona: Brilliant. Thank you. I know you covered a lot in your presentation, but do you have any other piece of advice that you'd give for small business owners? Any common mistakes that you see?
Trevor: Don't ever bury your head in the sand. Sometimes you might go digging and the results are not exactly what you want, but it's better to know beforehand than later down the line, when you have multiple problems.
Keep checking those numbers. Keep chasing those customers.
As I said, I used to feel really bad about chasing people for my own money. But you've earned that. That's your money.
The simple fact is that if you're VAT registered and you create a sales invoice for somebody, you've got to pay the VAT over regardless of whether the customer has paid or not. You have to get that invoice paid.
Caitriona: Thank you. Leo has just added more context for the question. They're asking whether there are any pitfalls to this kind of business model. The business is an intermediary earning commission by transactions, but the commission rate is fixed.
Trevor: If you're getting paid upfront, or getting paid on really good terms, and it's a service business, your overheads shouldn't be great.
I can't foresee any problem with a commission-based system or business model. There are a fair amount of commission-based systems and companies out there.
As long as you can get paid upfront, or you're getting paid in a timely manner and your overheads are not too bad, there should be no problem.
Caitriona: Brilliant. Thank you. Thanks, everyone, for your questions, and thanks, Trevor, for your presentation.
Please reach out to Trevor using the links we have up on the screen. I've also shared them in the chat.
I will be sharing a follow-up email with the recording later this afternoon. Thank you so much.
Trevor: Thank you.
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