I have received the company financial statements from my accountant and that document says that my company had made a big profit, but when I look at my company's bank account, the money is definitely not there. Where is it?

Its Diana here from HAVEC Accounting and this video today is to unpack the three reasons why this happens and also how to make sure that you're not caught off-guard, that you know exactly where that money goes. This is a very common question so please don't feel like you're the only one that is asking this. There's many other videos I'm sure around about this.

The reason number one is the timing. Chances are you get these reports in March or April but they're dated 30th June and, of course, when you look at the cash balance now its going to be completely different. A lot of things have changed, right? You're not going to know what has changed just by looking at the 30th June accounts. You definitely need more information.

The second most common reason is connected to your earnings as owner of the company. There are monies that you take out of the company that are part of the net profit calculation. For example, your wages, your superannuation, your bonuses or director's fees. But there are other things outside of that. For example, your dividends paid or anything else that you have taken out of the company that is most likely sitting in your director's loan account. So that's reason number 2.

The third reason is that, realistically, there is always going to be a mismatch between the net profit and the cash regardless of the timing because its a different calculation. So the net profit is calculated based on the invoices to your customers and invoices from your suppliers. And that is not necessarily going to be what you have paid or what you have received. And also there are other things not included in the profit that you have paid out; for example, your loan repayments, or if you have bought a large piece of equipment it may be in your assets and only a portion of that would be shown in your profit as depreciation.

So we saw that there's multiple reasons why there's these differences and, of course, these days, things change very rapidly and as a business owner if you see that your company's cash account gets lower and lower you need to know very quickly why this is happening. So what can you do about it?

Well, you can work in your team, either your internal or external team, to first of all make sure that the accounts are updated frequently and that you also receive financial information from your company more often than annually; for example, every three months or every month depending on how quickly things change within your business.

You can also ask your team to give you a cashflow report that shows exactly what has happened to the cash. And it can be a simple report that shows the cash at bank, the net profit, and then all the other movements we talked about; for example, any dividends paid, any loan repayments, any movements to things like receivable or payable so you know exactly where the money has gone.

Business owners shouldn't wait until they see their accounts getting lower and lower to get these reports done. Of course, you want to set up these procedures when things are going well so that you and your team have the mental space to set up all this, and then as you review things, as you review these reports, if things are happening in your business, if there are some issues, you can see them as they happen and act quickly to resolve them.

I hope this video is useful to you. Please send the link to this video to someone who you think may find this useful. Thank you.