Busy, Break-Even, and Still Bleeding Cash
There is a version of a business that looks steady from the outside and is not. The team is busy. The P&L is roughly break-even. And yet the cash keeps dropping, and nobody can quite say why.
Most of the time this is not a sales problem, and it is not a sign anyone has done something wrong. It is what happens when the day-to-day runs ahead of the numbers. And it usually comes down to two things hiding inside a flat P&L: the gap between gross and net, and the timing of cash.
Gross profit is not net profit
It is easy to read profit off the cost of sales. You know what a job cost to deliver, you know what you charged, and the margin between them looks like the profit. It is not.
That margin is gross profit: what is left after the direct cost of the work. Sitting underneath it is everything else the business has to pay for regardless, the wages, the building, the software, the admin. Net profit is what is actually left once all of that is covered. When the overheads never get carried through, the margin on a lot of jobs looks healthier than it is, and some jobs are quietly making nothing at all.
The P&L is not the balance sheet
The second gap is the one people miss most. A profit and loss statement (the P&L) tells you whether the business made money over a period. It does not tell you what is actually in the bank, or what the business owes. That is the balance sheet.
You need to read both to understand the true position. A business can post a roughly break-even P&L and still be draining cash, because profit on paper and money in hand are not the same thing. Work gets done, invoiced, and then drifts on terms nobody tightened, and the cash goes out faster than it comes in while the profit line looks calm.
In one engagement, a business that had been bought out of trouble was carrying both problems at once. It was losing money every month and the cash was going out the door, while the P&L sat close to flat and hid the severity.
What the fix looked like
Two moves, nothing added to the business:
- Get the cash in. The payment terms were already in the contracts. Reading them, and holding to them, closed the gap between doing the work and being paid for it, inside 30 days rather than whenever.
- Shed the work that was never profitable. Some accounts had been priced years earlier and never revisited. Renegotiating the ones worth keeping and letting go the rest brought revenue down and profit up.
Revenue fell. Profit rose. The cash finally matched the work.
Why it matters whether you sell or not
Getting the numbers to tell the truth is not exit prep. It is the same work whether an owner plans to sell one day or never. A business whose numbers are honest, whose cash comes in on time, and which is not quietly subsidising unprofitable work is lower-risk to a buyer and a great deal lighter to own in the meantime. The list is the same either way.
If you are busy and roughly break-even but the cash keeps dropping, that gap is usually findable, and usually fixable. PeakRatio works with founder-led SMEs to get the numbers telling the truth. Book a call.