Profit and cash flow answer different questions.

Profit measures whether income earned during a period exceeds the expenses recognised for that period. Cash flow tracks when money actually enters and leaves the business. A company can record a profit and still lack the cash needed for payroll, tax or supplier payments.

Understanding the difference matters before borrowing. Financing may help a healthy business bridge a timing gap, but it can make matters worse when the underlying business is consistently unprofitable.

A simple example

Consider a fictional wholesaler.

During June it delivers goods and invoices customers S$120,000. The goods cost S$78,000 and its running costs for the month are S$12,000, so it records S$30,000 of profit for June.

Now look at the bank account for the same month. Customers are allowed 60 days to pay, so the money arriving in June is S$25,000 from invoices raised back in April. Going out: S$70,000 to suppliers, for stock ordered in April and already sold, plus S$20,000 in wages.

June therefore records a S$30,000 profit and a S$65,000 fall in cash. Both numbers are correct. They are measuring different things, and neither is available to pay July's wages by itself.

Notice that the supplier payment has almost nothing to do with June's profit. It settles stock bought two months earlier. This is the ordinary state of affairs for a business carrying inventory, not a sign that something has gone wrong.

The reverse can also happen. A customer deposit may improve cash today even though the related work and costs come later. A new loan increases bank cash but is not revenue. Buying equipment consumes cash immediately, while the accounting expense may be recognised over the asset's useful life.

This example is fictional and simplified. Accounting and tax treatment should be reviewed by a qualified professional for your own circumstances.

Use three financial views together

Profit and loss account

Shows income and expenses over a period. It helps answer whether the business model is earning more than it costs.

Balance sheet

Shows what the business owns and owes at a point in time. It can reveal cash tied up in unpaid customer invoices, inventory or equipment, as well as loans, amounts owed to suppliers and other liabilities.

What you are required to prepare depends on how the business is set up. If you run a sole proprietorship or a partnership, IRAS explains that a statement of accounts means a profit and loss account together with a balance sheet. Companies follow a separate set of reporting rules, so ask your accountant which applies to you before assuming the two are the same.

Cash-flow forecast

Converts plans and obligations into dates. It asks whether enough money will be available when payroll, rent, tax, suppliers and debt repayments fall due.

Accounts describe the past. A forecast helps the owner manage the next few weeks — provided the assumptions are updated honestly.

Where profitable businesses lose liquidity

• Slow customer collection. Revenue is recorded, but receivables remain unpaid.
• Inventory growth. Cash is spent on stock before the stock is sold and collected.
• Supplier terms shorter than customer terms. The business pays in 30 days and collects in 60.
• Rapid growth. More orders require more materials, labour and operating expenditure before collections catch up.
• Tax and GST timing. Cash must be reserved rather than treated as freely available.
• Equipment and deposits. Large payments reduce liquidity even when the longer-term business case is sound.
• Debt and owner withdrawals. These cash outflows may not appear in the same way as ordinary operating expenses.

Build a rolling 13-week forecast

Start with opening bank cash. For each week, add receipts by the date they are realistically expected — not simply the invoice due date. Then deduct:

• payroll and CPF-related commitments;
• rent and utilities;
• supplier payments;
• GST and tax payments;
• existing financing repayments;
• equipment and maintenance spending;
• owner drawings or dividends where applicable;
• other committed outflows.

Calculate the closing cash position for every week. That closing balance becomes the next week's opening balance.

Use weekly rows for opening cash, customer receipts, other inflows, payroll, rent, suppliers, GST or tax, debt, capital expenditure, owner withdrawals and closing cash. Add columns for each scenario. Highlight the lowest cash point, the size of the gap and how many weeks it persists.

Run at least two scenarios:

1. Base case: realistic receipt and cost assumptions.
2. Delay case: material customers pay 15 or 30 days later.

A more exposed business should also test lower sales, higher input costs or the loss of a major customer.

Diagnose the result before choosing financing

A temporary shortfall with a clear recovery date may support a discussion about working-capital, receivables or revolving facilities.

A shortfall that persists after customer payments arrive may indicate weak margins, excessive overhead or other structural problems. Adding debt creates new fixed outflows and may simply push the crisis forward.

Ask:

• Does the cash balance recover after the expected receipt?
• Does the facility mature after the cash cycle completes?
• Are financing costs included in the revised forecast?
• Does the downside case still protect essential payments?
• Is the gap caused by a profitable activity, or by an activity that destroys cash?

Actions before borrowing

Financing is only one response. The business can also examine:

• earlier invoicing and collection follow-up;
• customer deposits or milestone billing;
• supplier payment terms;
• smaller or staged inventory orders;
• pricing and gross-margin corrections;
• deferring non-essential capital expenditure;
• reducing slow-moving stock or low-margin work.

The goal is not to avoid financing at all costs. It is to use financing for a defined timing or investment need rather than to disguise a recurring operating loss.

What this means for a lender conversation

A clear forecast helps explain the amount required, when it is needed, what will repay it, and what happens if receipts are delayed. It does not guarantee approval — financial institutions apply their own eligibility and credit assessments.

Sources

• IRAS — Preparing statement of accounts

Figures verified on 3 August 2026. Scheme parameters, rates and lender requirements change — check the primary source before relying on any figure.

Fundwise is an intermediary, not a lender. This is general information, not individual financial, legal, tax, accounting or credit advice. Financial institutions run their own eligibility and credit assessments and set all terms — we cannot guarantee approval, rate, amount or timing.

Read more about working capital loans, or get in touch to talk through your situation.