Why does a profitable business run short on cash?
Because the P&L and the bank account answer different questions. The P&L tells you what you earned and what it cost to earn it. The bank tells you what's left after everything that moved money, including things the P&L never sees.
The biggest gap for a business that invoices is timing. The SBA's guide to managing your finances says the accrual method puts a sale on the books when the sale is completed, while the cash method waits until payment arrives. If your books record sales when you invoice, every unpaid invoice counts as income on the P&L and as nothing in the bank.
Find your situation below. More than one row can apply at the same time, so check each of them.
| Your situation | Where the cash went | Report to check | What to do first |
|---|---|---|---|
| You send invoices with payment terms | Into customers' pockets until they pay | Accounts receivable aging | Chase the oldest invoices this week |
| You take owner draws rather than a paycheck | Out as draws, which reduce equity | Balance sheet equity | Set a draw amount the cash summary can carry |
| You're paying down a loan | Out as principal payments | Balance sheet loan balance | Add principal to your monthly cash plan |
| You bought equipment recorded as an asset, or stock still on the shelf | Into assets on the balance sheet | Balance sheet and asset list | Time the next big purchase against cash |
| You collect sales tax | Into a balance that belongs to the state | Sales tax liability account | Hold the tax apart until the return is paid |
How do unpaid invoices hide inside a profit?
They sit in accounts receivable, which is the total customers owe you. October can look strong on the P&L because you did the work and sent the invoices, while the deposits from that work land 30, 60 or 90 days later, or not at all.
The report that shows it is the accounts receivable aging report. Intuit's help page on aging reports says they show your customers' outstanding balances, how much is still due and how long they're past due. A business that bills on 30 day terms and has most of its receivables in the 60 and 90 day columns has found one place its cash is tied up.
The accounts receivable checklist
- Run the aging report as of the last day of the month, after the bank accounts are reconciled.
- Match every customer payment to the invoice it pays, so nothing paid still shows as open.
- Sort what's left by age and start with the largest balances in the oldest column.
- Check each overdue invoice for the agreed terms, the due date and who approves payment on the customer's side.
- Call or email about anything past terms, and note the date and the promised payment date.
- Ask your CPA how to handle any invoice you don't expect to collect, rather than deleting it from the books.
- Compare the total in accounts receivable with the cash summary every month, so the gap never surprises you.
If chasing invoices keeps slipping down your list, Ivory Balance Books offers accounts receivable management as an add-on to monthly bookkeeping.
What else takes cash without touching profit?
Owner draws, loan principal and equipment you buy. Draws and principal aren't expenses on the P&L at all, and equipment recorded as an asset can leave the bank before its full cost reaches the P&L.
Owner draws are money you take out for yourself. In the books they reduce your equity on the balance sheet, not your profit. IRS Publication 583 suggests identifying every deposit as business income, personal funds or loans, and writing checks to yourself only for personal withdrawals, which keeps draws easy to spot.
A loan payment splits in two. Intuit's instructions for tracking a loan in QuickBooks Desktop record interest payments as company expenses and payments of principal as a deduction to the loan's liability account. So the interest shows on the P&L, and the principal only lowers the loan balance on the balance sheet. A business paying down a loan can look profitable on paper while the principal takes a fixed amount out of the bank every month.
Equipment works differently again. Intuit's help page on assets and expenses says items used within one year are generally expenses, while those lasting longer than a year are considered assets, and assets appear on the balance sheet. So you pay for the equipment up front, but the cost often doesn't hit the P&L all at once. For tax, IRS Publication 946 describes depreciation as an annual income tax deduction that recovers the cost of certain property over the time you use it, and books commonly spread the cost of equipment in a similar way. How your return treats a purchase is a question for your CPA.
Is the sales tax in your bank account yours to spend?
No. The Utah State Tax Commission calls sales and use taxes trust fund taxes, because the seller holds the tax in trust for Utah until it's paid, and it says the funds may not be used for any other purpose. That's the same reason it belongs in a liability account, a point we also cover for businesses that have outgrown basic bookkeeping.
In Cottonwood Heights, the amount is easy to underestimate. The Tax Commission's sales and use tax rates page lists a combined sales and use rate of 7.45% for Cottonwood Heights for the quarter that started October 1, 2026, and a grocery food rate of 3%. So $1,000 of sales taxed at the combined rate carries $74.50 that you hold in trust and pay to the Tax Commission, and $1,000 of grocery food carries $30. If that money pays the rent this month, it's still owed when the return comes due.
Rates can change each quarter, so check the current one before you rely on it. Sales tax filing is one of the add-ons if you'd rather not track it yourself.
Not sure where your cash went?
Book a complimentary discovery call with Melanie. It takes about fifteen minutes, and it's a good time to look at what customers owe you.
Which reports show the gap each month?
Three of them, read together. The P&L shows the profit, the balance sheet shows receivables, draws, loans and sales tax owed, and a cash summary shows what actually came in and went out.
Read one alone and you'll get the wrong idea. Read all three after the accounts are reconciled and the question of where the money went usually answers itself. Monthly financial reports from Ivory Balance Books deliver all three by the 10th, from books that are categorized and reconciled through monthly bookkeeping.
Who helps a Cottonwood Heights business find where the cash went?
Ivory Balance Books serves businesses in Cottonwood Heights remotely from South Jordan. Our Cottonwood Heights page covers the city's own license packets. The engagement is month-to-month, and Melanie replies to messages within one business day.
