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Where Has My Cash Gone?

21 August 2019
Gavin Hooker
Accounting & Compliance, Raising Finance, Building a Business

Many business owners look at their bank balance to give them an idea of how their business is doing, then when they sit down at the end of the year with their accountant to sign off the accounts, they have made a profit (or a loss) that does not match their bank – but why?

Simply put, a business can have a profit but not have cash in the bank as profit is calculated using the invoices during the year regardless of whether they were paid or not.

To illustrate; ABC Limited has a 31 March year end and issues invoices to its customers with 30 day credit terms. Say ABC Limited sends £10,000 of invoices to its customers on 29 March, these would be reported in the profit of the company even if they were then paid in April. If ABC Limited had costs of £3,000, they would report a £7,000 profit in the accounts but will not have received any cash from its customers.

The same could be said when a business invests money into plant and machinery or office equipment. The value of these purchases do not decrease the profit in full, but instead their cost is spread across their useful economic life in what accountants call “depreciation”.

The best report to run to see where the cash has gone in a business is a cash flow report, which summarises what money, has been spent and received where. This report, together with a Profit and Loss and Balance Sheet report, can help you see exactly where your business is – so you are not just reliant on your bank balance! These reports form the basis of what accountants call “management accounts”.

As a simple example of a business’ cash movement in a period, let’s take the following example and what each line represents:

Money from trading
The net profit before depreciation £150,000 This is the profit from the annual accounts, ignoring any depreciation amounts
Money from other sources
Increase in Hire Purchase liability +£20,000 This represents additional hire purchase finance that has occurred during the year to buy new vehicles or assets
Sales of assets +£2,000 Sale proceeds from selling assets within the business
Increase in what we owe our suppliers and others +£1,000 Where credit terms are arranged with suppliers and the amount owed from last year has increased
Capital Introduced +£20,000 This is a capital injection by the business owner to increase working capital
Total extra money for the year +£193,000
How we have spent this money?
Our private or personal expenses -£15,000 Personal drawings from the business
Our income tax bill -£30,000 Tax payment paid out of the business for the owner’s personal liability or the company’s Corporation Tax liability
Purchase of assets -£30,000 New assets (equipment or motor vehicles) purchased by the business
Increase in the amount our customers and others owe us -£3,000 Where credit terms are arranged with customers and the amount owed from last year has increased
Decrease in loans -£15,000 Repayments made in the year to clear bank or personal loans
Total money spent in the year -£93,000
This leaves us with – Increase/Decrease in cash +£100,000
How does that compare to the cash movement?
At the beginning of the year £15,000
At the end of the year £115,000
Increase/Decrease in cash +£100,000


So do you know where the cash has gone in your business or are you just reliant on your bank balance, and the year end accounts are just a mystery? Accurate management accounts as well as detailed analysis, such as the above, can assist business owners gain a better understanding of their financial situation, allowing for more informed decisions.

If you want us to, we can prepare the handy cash-flow statement detailed above for your business for a small extra fee. Please contact your line manager or Mark and Andrew for more details.

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