It's one of the most common questions owners ask accountants: "The report says we made ₦8m, so where is it?" The money is real. It's just not in your account yet, or it was never yours to begin with.
1. Clients haven't paid yet
Profit (on an accrual basis) counts income when you invoice. If clients pay 60 days later, that profit is sitting in receivables, not in your bank.
Check: your aged receivables. Fix: deposits, advance billing, reminders.
2. Some of the cash isn't yours
The VAT you collect, and the PAYE and pension you deduct from salaries, sit in your account until you remit them. That cash looks available but belongs to the government and your staff.
Fix: move tax money to a separate account as you receive or deduct it.
3. You bought equipment
A ₦6m laptop refresh leaves your account today, but in your profit and loss it's spread over several years as depreciation. Cash drops a lot, profit barely moves.
Fix: plan big purchases in your cash flow forecast.
4. You're repaying loans
Loan repayments of principal reduce cash but aren't an expense. Only the interest hits profit.
5. You paid in advance
Annual software licences, rent paid a year upfront or insurance premiums reduce cash now, while the expense is spread across the months they cover.
6. Owners took money out
Dividends and director drawings reduce cash but aren't business expenses, so profit doesn't reflect them.
7. Timing
Month-end salaries, a VAT payment on the 21st, a large client payment arriving on the 2nd of next month: a snapshot on any single day can mislead.
How do I see the whole picture?
Read three things together every month:
| Report | Tells you |
|---|---|
| Profit and loss (accrual) | Whether you're earning more than you spend |
| Cash flow | Where cash actually went |
| Aged receivables and payables | What's owed to you and what you owe |
A quick reconciliation
Profit for the period − increase in receivables (invoiced but not paid)
- increase in unpaid bills and tax liabilities − equipment purchases, loan principal, prepayments, owner drawings = change in cash (roughly)
Your accountant does this formally as a cash flow statement. The rough version is enough to explain most gaps.
How BizBooks helps
The Overview shows cash flow (money that actually moved) next to profit and loss (accrual), with payable and owing aging below. The P&L report switches between accrual and cash, so you can see the gap directly. See bookkeeping and reports.
Frequently asked questions
Why doesn't my profit match my bank balance?
Because profit records income and costs when they're earned or incurred, while your bank records when money moves. Late-paying clients, taxes held, equipment, loans and owner drawings all create gaps.
Can a company be profitable and still run out of cash?
Yes. Most often because clients pay late while salaries, rent and taxes are due on fixed dates.
Is VAT part of my profit?
No. VAT you collect is owed to the government, so it's excluded from income and should be set aside.