Why Profitable Businesses Run Out of Cash

If you're a New Zealand business owner right now, chances are you don't need anyone to tell you it's tough. A Vero survey published in March 2026 found that nearly two-thirds of NZ SMEs reported falling revenue over the past year, with one in six seeing drops of more than 25%.

But here's what's making it worse, costs haven't fallen with it. Wages, fuel, insurance, materials, software subscriptions have all kept climbing while revenue has stalled or retreated. That squeeze, revenue down and costs up, is compressing margins across the board. And when margins compress, cashflow follows. This is the environment your business is operating in right now. So if your bank balance feels worse than your Profit and Loss suggests it should, you're not imagining it and you're not alone.

Profit and Cash Are Not Always in Sync

Even in a healthy economy, profit and cash don't always move together. Your Profit and Loss records revenue when it's earned, not when it's paid. It records costs when they're incurred, not when the money leaves your account. That timing gap has always existed.

What's changed is that the gap is now being stretched from both ends. Revenue is taking longer to materialise or simply isn't growing, costs are hitting faster and harder, and the margin that used to absorb those timing mismatches is thinner than it was.

The mechanics of how that gap is created, through debtor days, creditor terms, stock cycles, and drawings, is something we've covered in depth in a previous post. But there are other factors worth understanding that don't get nearly enough attention right now.

The Growth Trap

Here's something counterintuitive: growing your business can make your cashflow worse before it makes it better.

Taking on a large new client means resourcing up, more inventory, more staff, more materials, more hours, before the revenue arrives. Hiring ahead of demand burns cash today for income that comes in weeks or months later. Investing in equipment or systems to handle more work requires capital outlay now.

None of this is wrong. It's just the reality of growth. The problem isn't growing, it's growing without visibility over what it's doing to your cash position in the short term.

Businesses that navigate growth well tend to have one thing in common — they model the cashflow impact of major decisions before they make them, not after. A 13-week rolling cashflow forecast isn't a tool for businesses in trouble. It's a tool for businesses moving fast.

Talk to Your Bank Before You Need To

This is the one most business owners leave too late.

If your cashflow forecast is showing a tight patch coming up — whether that's seasonal, growth-related, or just the current environment — your bank is a resource worth engaging early. Most business owners only pick up the phone when they're already under pressure, which is the worst time to be having that conversation.

Banks have more flexibility than people realise, but they respond to preparation and honesty, not surprises. A proactive conversation about your cashflow outlook, backed by a forecast, opens options that a reactive one doesn't. Principal repayment relief, temporary facility adjustments, or a review of your lending structure are all conversations your bank is willing to have — if you come to them early and with a clear and well-presented picture of your position.

The businesses that navigate tough periods well aren't necessarily the ones with the strongest numbers. They're the ones with the best visibility over those numbers, and the confidence to use that visibility to have the right conversations at the right time.

The Quiet Margin Erosion Most Owners Miss

If your costs have risen but your prices haven't moved, your gross profit per job or sale is quietly shrinking. You might be doing the same volume of work, or more, but generating less cash from every dollar of revenue.

The maths is stark. An 8% rise in costs left unanswered can cut net profit by a third. The same cost environment with a deliberate pricing adjustment can increase net profit by over a quarter. Same business, same workload, completely different cashflow outcome.

Most business owners think of pricing as a revenue conversation. It's actually a cashflow conversation. Every dollar of improved gross margin flows through to your working capital without having to chase a debtor, renegotiate a supplier term, or reduce your drawings. It's the highest leverage point in your operating cycle and the most neglected.

We recently posted about this on Instagram and Facebook.

What to Do With This

If your cash position doesn't reflect your profitability, start by asking three questions.

Where is cash sitting right now? Is it in unpaid invoices, unsold stock, or already spent on costs that haven't yet generated revenue? Understanding where the cash is helps you decide what to do about it.

What's happening to your margins? Run the numbers on gross profit by service or product line. If margins have drifted without a deliberate decision, that's worth addressing before anything else.

What's coming in the next 90 days? Map your expected inflows and outflows. You don't need a complex model — regular financial reporting and analysis gives you that 90-day view as a matter of routine rather than a one-off exercise and tells you a lot more than your annual accounts ever will..

The goal isn't to eliminate the gap between profit and cash. That gap will always exist to some degree. The goal is to understand it well enough that it never catches you off guard.

At Informed Decisions, we work alongside SMEs in Hamilton, Waikato and across New Zealand to build cashflow visibility, financial reporting and working capital structures that take the stress out of growth. If you'd like a fresh set of eyes on your numbers, let's talk.