What does a financial advisor for small business owners do?

A financial advisor for small business owners can help connect business decisions with the owner’s personal financial plan. Depending on the engagement, that may include cash flow planning, tax planning coordination, retirement planning, investing outside the business, risk management, and preparing financially for a future business sale or transition.

How is a business owner financial planner different from a traditional financial advisor?

A business owner financial planner looks beyond an investment portfolio and considers how the business affects the owner’s overall financial life. Business income, owner compensation, taxes, reinvestment decisions, retirement benefits, business value, and personal investments may all need to work together rather than being planned separately.

When should a business owner consider hiring a financial advisor?

A business owner may consider hiring an advisor when financial decisions become more complex or begin overlapping. Common examples include increasing profits, unpredictable cash flow, significant tax liabilities, hiring employees, choosing a retirement plan, building wealth outside the company, buying out a partner, or preparing for an eventual exit.

How can business owners build wealth outside of their business?

Business owners can potentially build wealth outside their companies through cash reserves, retirement accounts, taxable investment accounts, real estate, and other investments. The appropriate strategy depends on the owner’s goals, cash flow needs, risk tolerance, and the potential return from continuing to reinvest money back into the business.

What should I look for when choosing a financial advisor for my business?

Look for an advisor who understands both business and personal financial planning and can clearly explain how they are compensated. Consider asking whether they are a fiduciary, how often they work with business owners, whether they coordinate with CPAs and attorneys, and whether their services include areas such as tax planning, business cash flow, retirement planning, investing, and exit planning.

Why Is My Business Profitable but I Have No Cash?

Kendall Maccagnan

Oct 15

5 min read

By Kendall Maccagnan, CPA, CFP® and Financial Advisor in Tampa, Florida

If your business is profitable but you have no cash, the money is usually tied up somewhere your profit and loss statement doesn't show: unpaid customer invoices, inventory, loan payments, equipment purchases, owner draws, or taxes. Profit measures whether you earned more than you spent. Cash measures what's actually in the bank.

It's one of the most common frustrations I hear from business owners. The good news is that the cash didn't disappear. Your financial statements can usually help you understand where it went.

Key Takeaways

Profit and cash are different. Profit shows what you earned, and cash shows what you have.
The most common cash drains are slow paying customers, inventory, loan payments, equipment purchases, owner draws, and taxes.
To find where your cash went, look at your cash flow statement, not your P&L.
A cash reserve, a separate tax savings account, and a simple cash forecast can keep a profitable business from running short.

What's the Difference Between Profit and Cash?

Your profit and loss statement shows revenue minus expenses. But many transactions affect your cash without showing up on your P&L, or show up at a different time.

For example, under accrual accounting, if you invoice a customer $20,000 in December and they pay in February, your P&L may count that revenue in December, but the cash doesn't arrive for two months.

When you make a $2,000 loan payment, only the interest is an expense. The principal leaves your bank account without ever touching your profit and loss statement.

Seven Reasons Your Profitable Business Has No Cash

Where the cash went	Why your profit doesn't show it	What to check
Customers paying slowly	Revenue may be recorded before the customer pays, particularly under accrual accounting.	Accounts receivable aging report
Inventory and materials	Inventory isn't an expense until it's sold	Inventory on your balance sheet
Loan payments	Only the interest is an expense, not the principal	Loan balances on your balance sheet
Equipment and vehicles	Often deducted over time through depreciation, while the cash is spent at purchase	Fixed assets on your balance sheet
Owner draws and distributions	Money you take out isn't a business expense	Owner draws or distributions in the equity section
Taxes on your profit	Pass-through business taxes are usually paid personally, often with business cash	Estimated tax payments
Growth	More sales often means more payroll, inventory, and unpaid invoices before cash comes in	Cash flow statement over several months

Taxes surprise owners the most. If your business is taxed as an S corporation, partnership, or other pass-through entity, the business income generally passes through to the owners' personal tax returns. You may owe tax on your share of that income even if you don't distribute all of the cash, which is why quarterly estimated taxes can feel like they come out of nowhere.

How Do I Find Where My Cash Went?

Start with your cash flow statement. QuickBooks and Xero can both produce one. It begins with your net income and ends with your change in cash, and every line in between is part of your answer.

Then ask four questions:

Are unpaid customer invoices growing faster than sales?
How much did I take out as owner draws or distributions?
Did I buy equipment or pay down loans?
How much did I pay in taxes?

These reports are only as good as your bookkeeping, so if your books are behind, clean them up first.

How to Keep a Profitable Business From Running Out of Cash

Get paid faster. Invoice as soon as work is done, and ask for deposits on larger jobs.
Set aside taxes as you go. Move a percentage of every deposit into a separate tax account. Systems like Profit First® build this in. I also discuss the bucket system which is what I like to use when working with business owners.
Pay yourself on a plan. Set a regular amount based on what the business can support, instead of taking whatever is in the account.
Plan big purchases. Before buying equipment or vehicles, decide whether to pay cash or finance, and time it around your slower months.
Build a cash reserve. Keep a cushion for slow months, especially if you're seasonal.
Forecast your cash. A simple week by week spreadsheet of expected cash in and out for the next 13 weeks can show a shortfall before it happens.

When to Get Help

If you've looked at your numbers and still can't explain where the cash went, or if cash shortages keep happening, a second set of eyes can help. As a CPA, I start with your financial statements and bookkeeping to understand what's driving the cash shortage, then help you build a plan to address it.

If you're a business owner in Tampa Bay or elsewhere in Florida, learn more about our business financial planning or book a consultation.

Frequently Asked Questions About Profit and Cash Flow

Can a business be profitable and still run out of cash?

Yes. A business can show a profit while its cash is tied up in unpaid invoices, inventory, equipment, or loan payments. Profit is an accounting measure of what you earned, while cash is what you have available to pay bills.

What is the difference between profit and cash flow?

Profit is revenue minus expenses. Cash flow is the money actually moving in and out of your bank account, including items that aren't expenses, like loan principal and owner draws.

Why do I owe taxes if I don't have cash?

If your business is taxed as a pass-through entity, such as an S corporation or partnership, you may owe tax on your share of the business's taxable income even if you don't receive an equivalent amount of cash from the business.

How much cash should my business keep in reserve?

There isn't one cash reserve amount that works for every business. The right amount depends on your monthly operating expenses, how predictable your revenue is, how quickly customers pay, seasonality, upcoming purchases, and how much of your costs are fixed.

This content is provided for educational and informational purposes only and should not be construed as investment, tax, or legal advice. It is not intended as a solicitation or offer to provide advisory services in any jurisdiction where Off the Bay Wealth, LLC is not properly registered or otherwise permitted to operate. Information presented is based on sources believed to be reliable; however, accuracy and completeness are not guaranteed. This material is not intended to be a comprehensive analysis of all topics discussed. IRS provisions are subject to ongoing guidance and regulatory updates. Any financial decisions should be made in consideration of your individual circumstances, including your goals, risk tolerance, and time horizon. Investing involves risk, including the potential loss of principal.