Why this decision matters
The income statement says you made money. The bank account says you cannot make payroll. Both are telling the truth — about different things. Accrual accounting records revenue when it is earned and expenses when they are incurred; cash arrives and leaves on its own schedule.
Understanding where profit hides on its way to becoming cash is the single most protective piece of financial literacy a business owner can acquire.
The central idea
Growth consumes cash before it returns cash. The faster you grow, the wider the gap — and the gap is funded from your bank account.
Profit leaks into four main reservoirs before it reaches the bank. Receivables: every sale on 30- or 60-day terms is profit you have recorded but cash you are lending to customers. Inventory: stock on shelves is cash converted into waiting. Capital purchases and loan principal: equipment and debt repayment consume cash but barely touch the income statement. Taxes and remittances: GST/HST collected, payroll withholdings, and instalments are cash in your account that was never yours.
Growth multiplies all four at once — more sales means more receivables outstanding, more inventory ordered, more capacity purchased — which is why fast-growing profitable companies are the classic cash-crisis victims. The cure is not less growth; it is seeing the cycle: know your cash conversion cycle in days, fund growth deliberately (with terms, deposits, or financing) rather than accidentally, and treat the statement of cash flows as the third financial statement it was always meant to be.
Educational use notice
This publication is part of the Numera Decision Library and is provided for education only. It is general information — not accounting, tax, legal, or investment advice — and it does not consider your personal circumstances. Every guide is grounded in official guidance from government and regulated authorities — including the Canada Revenue Agency (CRA), the Department of Finance Canada, Service Canada and Employment and Social Development Canada, the Internal Revenue Service (IRS), and the Canadian Centre for Cyber Security — with the sources listed at the end of each guide. Tax rules and dollar limits change; confirm current figures with the official source, and speak with a qualified professional before acting on any decision discussed here.
Official references
Sources are official government and regulated-authority publications. Official sites reorganize periodically — search the document title if a link has moved.