December 9, 2025

We’re Profitable… So Why Is There No Cash?

Understanding Cash Flow Before Another Year Slips Away

One of the most painful sentences business owners say is:

“The profit looks fine… but there’s nothing in the bank.”

On paper, you’re doing okay. In real life, you’re sweating payroll.

This disconnect usually means one thing: you don’t have a clear handle on cash flow.

December is the perfect time to learn the difference between profit and cash, and to put habits in place so next year feels very different.

Profit Is an Opinion. Cash Is a Fact.

Profit is what your accounting system says after:

  • Recording all your income
  • Subtracting your expenses
  • Applying accounting rules (accruals, amortization, etc.)

Cash is what your bank balance actually shows today.

You can have:

  • Positive profit and negative cash
  • Negative profit and positive cash
  • Or any combination in between

Without understanding this difference, you’ll constantly feel confused and betrayed by your own numbers.

Where Cash Hides (and Disappears)

Common cash sinks:

  • Accounts receivable – You’ve invoiced, so revenue looks great — but the customer hasn’t paid yet.
  • Inventory – You bought goods; the cash left your bank, but you haven’t sold them yet.
  • Prepaid expenses – You paid up front for something (like insurance or software) recognized gradually over time.
  • Loan repayments – Only interest shows as an expense; principal reduction doesn’t affect profit but eats cash.
  • Owner withdrawals – Money you pull out doesn’t show on the income statement but absolutely impacts cash.

Understanding where your cash is sitting is the first step to controlling it.

Build a Simple Cash Flow View (Even If Your System Is Basic)

You don’t need a PhD.

At its simplest, cash flow is:

Starting cash

  • Cash in (sales collected, loans received, owner contributions)
    – Cash out (suppliers, payroll, rent, taxes, loan repayments, owner withdrawals)
    = Ending cash

A 13-week cash flow forecast even on a spreadsheet can change your life as an owner.

Master the “Cash Conversion Cycle”

In plain language:

How long does it take for money you spend on inputs (inventory, labour, etc.) to come back to you as cash from customers?

If it’s long, you’re constantly “bridge-financing” your own business.

To shorten it:

  • Collect faster (tighter terms, better follow-up, deposits).
  • Manage inventory more carefully (avoid over-stocking).
  • Negotiate better vendor terms (where appropriate).

At Solstice Partners, we often help owners reduce this cycle by weeks or months, without changing what they sell, just how they manage it.

Stop Treating Taxes as a Surprise

Taxes are one of the biggest drags on cash for profitable businesses.

If you:

  • Ignore instalments
  • Avoid thinking about HST/GST
  • Treat tax as an annual shock

…then cash will constantly feel like it’s being stolen.

Better:

  • Estimate tax exposure regularly.
  • Set aside money each month into a separate tax account.
  • Treat this account as untouchable.

Profit becomes far less misleading when tax is anticipated instead of feared.

Build a Cash Reserve on Purpose

Even a one-month buffer of operating expenses can:

  • Lower stress.
  • Prevent desperate decisions.
  • Make you more attractive to lenders.
  • Allow you to weather slow periods without panic.

But it doesn’t appear magically.

It’s a decision:

“X% of profit each month goes into our reserve until we hit Y.”

Align Owner Draws With Reality, Not Hope

Owner withdrawals are often where cash discipline goes to die.

Ask:

  • How much can the business safely pay me based on actual cash flow, not theoretical profit?
  • What happens if I reduce my draws for 3–6 months to build a buffer?
  • Would a salary + dividend plan be more sustainable than irregular, large draws?

Solstice Partners frequently helps owners redesign compensation so both the owner and the company can breathe.

Turn Cash Flow Into a Monthly Conversation

Each month, review:

  • Starting and ending cash
  • Large inflows and outflows
  • AR and AP aging
  • Upcoming big payments
  • Tax accruals

Then ask:

  • “Do we like this trend?”
  • “What can we change in the next 30–60 days?”

Avoiding cash conversations doesn’t protect you, it blinds you. Frequent, small, honest reviews are far kinder than rare, catastrophic shocks.

Use December to Reset the Relationship Between Profit and Cash

Before the year closes:

  • Identify where your cash is stuck (AR, inventory, etc.).
  • Decide on 2–3 concrete moves to improve cash in Q1.
  • Sketch a simple 13-week cash forecast.
  • Clarify owner draws and tax saving rules.

If you’d like a partner in this, Solstice Partners can help you build a cash-flow framework that fits your business size, industry, and goals. Get in touch with our Team!