Recently, I worked with a number of engineering businesses and prepared their first proper finance pack, an income statement and a cash flow statement.

One of the first questions we were asked was:

“What’s the difference between these two?”

It’s a simple question.

But it exposed a much bigger issue.

These were strong businesses:

• Record sales
• Beating budget
• Healthy margins

Month after month of solid profits reported

And yet…

Payroll felt tight.

Suppliers required careful juggling.

The bank balance never quite reflected the success on paper.

The income statement said they were winning. The bank account said, “not so fast.”

The misunderstanding: profit ≠ cash

Most business owners are not wrong, they are just looking at the business through one lens.

Profit tells you whether the business is earning more than it spends.

Cash flow tells you when money actually moves.

Working capital (in a services business, largely WIP and debtors) tells you how much cash is tied up in delivering work before you get paid.

If those three are not understood together, the result is predictable: A profitable business that constantly feels under pressure.

Where cash gets trapped in a services business

In an engineering or project-based business, the issue is not inventory, it’s work in progress (WIP).

Let’s play it out.

You win a project.

• You start work immediately
• You pay wages weekly or fortnightly
• You engage contractors
• You invest in tools and equipment

Cash goes out from day one.

But revenue?

• You invoice when a phase is complete
• The client pays 30 days end of month (in theory…)
• In reality, it may be 45–60+ days before the cash arrives

So, for a period of time, the business is funding the project.

Profit may be recognised as work is delivered. Cash arrives much later.

That gap is working capital.

Why growth makes this worse, not better

We all know growth increases the cash requirement. But, how much do I need?

More projects mean:

• More wages paid upfront
• More WIP sitting unbilled
• More invoices waiting to be paid

The faster you grow, the more cash you need, not the more cash you have.

It’s one of the great paradoxes of business.

And it explains why an owner can say, quite genuinely:

“We’re smashing our numbers… but it feels harder than ever.”

(Quick dad joke, just to keep us honest: Growth in these businesses can feel a bit like joining the gym… you expected to get stronger, but somehow you are just more tired and carrying heavier weights.)

The real issue: understanding profit, but not the cash cycle

In every instance, the pattern was the same.

The owners understood their profit.

They did not understand their cash cycle.

Their accountant had been reporting strong results, accurately.

But no one had translated:

• Growth
• Project timing
• Customer payment behaviour

…into the working capital required to fund it.

EOFY reflection: the budget trap most businesses fall into

This becomes most visible at year end.

Most budgets are built around the profit and loss:

• How much will we sell?
• What will it cost to deliver?

Often, that’s where it stops. But budgets often miss:

• When cash leaves the business (especially payroll)
• When cash actually comes in
• How WIP builds across projects
• How debtors behave in reality, not theory
• What investment is required to sustain delivery

Then the new year starts.

Payroll hits.

The bank account drops.

And the question comes up:

“How is this possible? We’re profitable.”

The shift: from profit reporting to the sustainable cash flow lens

To fix this, we changed the lens.

Instead of asking only:

“Did we make a profit?”

We asked a different set of questions: ones that align profit to cash.

The sustainable cash flow lens

1. What profit did the business generate?
2. What investment was needed just to sustain the business?
3. How much additional working capital was required?
4. What cash was left before debt and tax?
5. What cash was left after tax, interest and debt repayments?
6. What was genuinely available for growth, dividends or reinvestment?

EBIT, adjusted for non-cash items.

Replacement assets, systems, equipment and normal operating requirements.

More receivables, more WIP, supplier timing and payment terms.

This format changed the conversation.

It did not just show whether the business was profitable.

It showed:

• Where the cash was going
• When it would get tight
• Which levers the owners could actually pull

And importantly:

It made the invisible visible.

Not many businesses use this lens.

But those that do operate with a very different level of clarity.

Turning the budget into a cash plan

Once the concept landed, the next step was practical.

We took the budget… and rebuilt it as a cash flow forecast.

Step 1: Start with the P&L

Revenue by project or phase

Labour and delivery costs

Nothing new here.

Step 2: Translate timing into cash

This is where the value sits.

Debtors

Use historical behaviour, not just terms

(30 days EOM is rarely 30 days)

WIP

How long work sits before invoicing

How quickly invoices are issued

Payroll

Fixed, regular, immediate cash obligation

Suppliers and contractors

Actual payment patterns vs agreed terms

Step 3: Layer in investment

Equipment required to deliver projects

Systems and capability upgrades

Growth-related investment

Step 4: Map the cash curve

When does cash get tight?

How deep is the trough?

What happens if growth accelerates?

This turns cash from a surprise into something you can plan for.

Same business.

Very different feeling.

The levers that make the biggest difference

Once the visibility is there, the levers become obvious.

1. Debtors (often the biggest impact)

• Invoice earlier
• Tighten milestone billing
• Incentivise early payment
• Actively manage collections

A project isn’t complete when the work is done. It’s complete when the cash lands.

2. WIP / project structure

• Shorten time between progress and billing
• Introduce deposits where appropriate
• Reduce lag in raising invoices

3. Cost and supplier alignment

• Align outflows with inflows where possible
• Renegotiate future terms (not always current ones)

4. Funding (used properly)

• Line of credit
• Overdraft
• Invoice or project financing

This is key:

The goal is not to avoid funding.

The goal is to match funding to the cash cycle.

EOFY questions every owner should ask

As we approach year end, this is the reset moment.

Before building next year’s plan, ask:

• Are we profitable… or just busy?
• How long does it take to turn work into cash?
• How much WIP are we funding right now?
• What cash gap will next year’s growth create?
• Are we budgeting for profit only, or cash as well?
• Do we have the right facilities to support our growth?

Final thought

Profit tells you the business model works.

Cash flow tells you if the business can breathe.

Working capital tells you what growth will cost.

EOFY is not just about closing the books.

It’s about understanding how your business actually moves cash and planning for what comes next.

Because no business owner should be: smashing their budget… and still wondering where the cash has gone.