Why Business Owners Should Stop Looking at Their Bank Balance
If you run a business, there's a good chance one of the first things you do each morning is check your bank account.
£87,452.
Looks healthy.
You feel comfortable.
Perhaps you decide you can afford to take some money out of the business, hire another employee or invest in new equipment.
But what if that £87,452 isn't really available to spend?
What if £40,000 is owed to HMRC?
What if £25,000 is owed to suppliers?
What if your payroll is due next week?
What if several large customer invoices are already overdue?
Your bank balance might say £87,452.
Your business's financial position could tell a very different story.
That's why one of the most important pieces of advice we give growing businesses is:
Stop managing your business by your bank balance.
Your bank account is useful.
But it isn't a financial strategy.
Your bank balance isn't your profit
One of the biggest misconceptions in business is that the money sitting in your bank account represents how much you've made.
It doesn't.
Your bank balance tells you how much cash is in the account at a particular moment.
Your profit and loss account tells you how much revenue you've generated, what it cost to generate that revenue and how profitable the business has been over a particular period.
Those are two very different things.
For example:
Imagine your business has:
£500,000 annual revenue
£400,000 expenses
£100,000 profit
£150,000 in the bank
It might look like you have £150,000 available.
But perhaps:
£30,000 is VAT owed to HMRC
£25,000 is corporation tax
£35,000 is owed to suppliers
£20,000 is required for next month's payroll
Suddenly, that £150,000 doesn't look quite so spendable.
This is why profit, cash and bank balance need to be considered together.
Cash flow and profit are not the same thing
A profitable business can run out of cash.
It sounds strange, but it's entirely possible.
Imagine you win a £100,000 contract.
You invoice your customer £100,000, meaning you've generated significant revenue.
But your customer doesn't pay for 90 days.
In the meantime, you still have to pay:
Employees
Suppliers
Rent
Utilities
VAT
Corporation tax
Other overheads
Your accounts might show strong revenue and profit.
But your bank account could be under significant pressure.
This is why cash flow forecasting is so important for growing businesses.
You don't just need to know how much money you have today.
You need to understand how much cash you'll have in the future.
Your bank balance is backward-looking
There's another problem with relying too heavily on your bank account.
It tells you what has happened up to today.
It doesn't tell you what is going to happen next month.
A business owner might look at their account and see £100,000.
But what happens if:
Payroll is £30,000?
VAT of £20,000 is due?
Corporation tax of £25,000 is due?
£15,000 of supplier payments are due?
A major customer doesn't pay on time?
That £100,000 can disappear surprisingly quickly.
A good finance function should help you look forward, not just backwards.
What should business owners look at instead?
Your bank balance is one number.
You need a much broader picture of your business.
Here are seven financial metrics every growing business should be monitoring.
1. Revenue
Revenue tells you how much your business is selling.
But revenue on its own doesn't tell you whether you're making money.
A business generating £2m in sales could be less profitable than a business generating £1m.
That's why revenue should always be considered alongside margins and profitability.
2. Gross profit margin
Your gross profit margin tells you how much money you retain after the direct costs of delivering your product or service.
For example:
£1m revenue
£600k direct costs
= £400k gross profit
Gross margin = 40%
Monitoring this over time can be extremely valuable.
If your revenue is increasing but your gross margin is falling, you may actually be becoming less profitable as you grow.
3. Net profit
Net profit tells you what remains after your business's costs have been taken into account.
This is one of the most important measures of financial performance.
But don't just look at the figure.
Look at the trend.
Is profit:
Increasing?
Decreasing?
Staying flat?
Growing slower than revenue?
A business whose revenue grows by 20% but profit only grows by 2% may have a very different underlying problem from one where both increase by 20%.
4. Cash flow
Cash flow tells you how money is moving through the business.
A useful cash flow forecast can show you:
Expected customer receipts
Supplier payments
Payroll
VAT
Corporation tax
Loan repayments
Capital expenditure
Other significant payments
This allows you to identify potential cash shortages before they happen.
That's much more useful than discovering the problem when your bank balance suddenly falls.
5. Debtor days
How quickly are your customers paying you?
Imagine your business generates £1m of annual revenue.
If customers take significantly longer to pay than they used to, a substantial amount of cash can become trapped in unpaid invoices.
Good credit control can make a huge difference to cash flow.
Sometimes the easiest way to improve your cash position isn't to make more sales.
It's to collect the money you're already owed.
6. Monthly recurring costs
You should know exactly what it costs to keep your business running each month.
This might include:
Salaries
Rent
Software
Insurance
Utilities
Finance costs
Professional fees
Marketing
Other overheads
Understanding your fixed monthly costs gives you a much clearer picture of your break-even point and the level of revenue you need to generate.
7. Cash runway
A particularly useful metric for growing businesses is cash runway.
This asks:
"If our income stopped tomorrow, how long could we continue operating?"
For example, if you have £120,000 of available cash and your business consumes £30,000 per month, your theoretical runway is four months.
Of course, the calculation becomes more complicated when you consider incoming customer payments, variable costs and other factors.
But the principle is incredibly useful.
It forces you to think about the resilience of your business rather than simply the current bank balance.
Why a growing business needs management accounts
This is where monthly management accounts become incredibly valuable.
Your annual accounts tell you what happened during the previous financial year.
Management accounts can tell you what's happening right now.
A good monthly management report might include:
Profit and loss
Balance sheet
Cash position
Revenue analysis
Gross margin
Net profit
Debtors
Creditors
Budget vs actual
Key performance indicators
This gives you a much more complete view of the financial health of your business.
Instead of asking:
"How much is in the bank?"
you can start asking:
"Are we profitable?"
"Are our margins improving?"
"Are customers paying on time?"
"Can we afford to hire?"
"What will our cash position look like in three months?"
"Are we on track to hit our targets?"
Those are much better questions.
The danger of having "too much" money in the bank
Interestingly, a large bank balance isn't always a sign that everything is going well.
Perhaps you've recently received a large customer payment.
Perhaps you've borrowed money.
Perhaps you've received investment.
Perhaps you've delayed paying suppliers.
Perhaps you're holding money that will eventually be required for tax.
The bank account doesn't explain why the money is there.
That's why business owners need to understand the story behind the number.
The danger of having "too little" money in the bank
The opposite can also be true.
A relatively low bank balance doesn't necessarily mean your business is struggling.
You might have:
Significant unpaid customer invoices
Strong forward sales
Low debt
High profitability
Significant assets
Again, the bank balance only tells you one small part of the story.
A simple example
Imagine two businesses.
Business A
Bank balance: £250,000
Profit: £40,000
Debtors: £300,000
Monthly overheads: £80,000
Business B
Bank balance: £75,000
Profit: £200,000
Debtors: £40,000
Monthly overheads: £35,000
Which business is healthier?
If you only looked at the bank account, you'd probably choose Business A.
But once you understand the wider financial picture, the answer becomes much less obvious.
This is exactly why business owners should stop using their bank balance as the primary measure of financial health.
What should you look at every month?
For a growing business, I'd recommend having a simple monthly financial dashboard covering at least:
Performance
Revenue
Gross profit
Gross margin
Net profit
Profit margin
Cash
Current cash
Expected receipts
Expected payments
Forecast cash position
Cash runway
Working capital
Debtors
Debtor days
Creditors
Creditor days
Business performance
Key KPIs
Budget vs actual
Previous month
Previous year
This doesn't need to be a complicated 50-page finance pack.
In fact, simple and consistent is usually better than complicated and ignored.
Your bank balance is a symptom, not a strategy
There's nothing wrong with checking your bank account.
You absolutely should know how much cash you have.
But it should be one part of your financial dashboard, not the dashboard itself.
The best business owners understand that financial management isn't about knowing how much money is in the bank.
It's about understanding:
Where the money came from.
Where it's going.
How profitable the business really is.
What risks are coming.
And what you can afford to do next.
How Welf Accountants can help
At Welf Accountants, we believe business owners should have access to financial information that helps them make decisions — not simply accounts that tell them what happened last year.
Our outsourced finance service can provide businesses with bookkeeping, monthly management accounts, cash flow forecasting, credit control, financial reporting and strategic financial support.
We help growing businesses move away from simply checking the bank balance and towards properly understanding the financial performance of their business.
Because ultimately:
Your bank balance tells you how much cash you have. Your numbers tell you how well your business is actually doing.
Ready to understand your numbers?
Talk to Welf Accountants about creating a finance function that gives you the clarity and control to grow your business.