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Profit vs. Cash Flow: Why You Might Feel Broke While Growing
You’re busier than ever. Clients are coming in, your revenue is growing, and the caseload hasn’t stopped moving.
But when you check your bank account, it doesn’t match the story your profit & loss report seems to tell. You feel stretched thin. There’s no room to hire help. You hesitate to invest. And you wonder:
If I’m profitable, why does it feel like I’m broke?
This disconnect—between the income on paper and the cash in your account—is one of the most common financial blind spots for growing law firms. Understanding the distinction between profit and cash flow isn’t just academic. It’s fundamental to operating your business with clarity, confidence, and long-term success.
What Is Profit? What Is Cash Flow?
To get technical for a moment:
Profit is the number you see on your P&L report after expenses are subtracted from revenue. It’s what’s left after you account for costs like payroll, rent, software, and marketing. Profit is a reflection of performance—but not necessarily of liquidity.
Cash flow is the movement of money in and out of your firm’s accounts. It’s your ability to pay bills, make payroll, cover taxes, and pay yourself.
You can show a healthy profit on paper while struggling to cover basic expenses. That’s because profit is a long-term metric and cash flow is immediate. Profit looks at earned income. Cash flow looks at collected income.
Why the Gap Happens in Law Firms
The legal business model is especially prone to cash flow gaps, even in profitable practices.
Here’s why:
- Timing differences between earning and collecting
- You might bill $50,000 in legal services in July, but if those payments don’t come in until August—or worse, get delayed—you’ve earned the revenue without receiving it. Profit shows up. Cash does not.
- Retainers sitting in trust accounts
- If you’re compliant, client retainers remain in your IOLTA account until earned. That money isn’t yours yet, even if it’s technically on your books. Mistaking trust funds for operating income can lead to dangerous overextension.
- One-time expenses or seasonal costs
- Hiring a new employee, launching a marketing campaign, or paying annual software subscriptions can create short-term cash strain—even if the long-term return justifies it.
- Untracked owner draws or payroll taxes
- Taking distributions without recording them, or failing to withhold and remit payroll taxes, can erode actual available funds and distort the real cash picture.
- Uncollected receivables
- If you’re using accrual accounting, you may record revenue when invoiced—not when paid. A high accounts receivable balance boosts your “profit” but does nothing for your liquidity if clients are slow to pay.
Why This Is Dangerous to Ignore
Cash flow is what keeps the lights on.
Profit tells you how your business is performing. Cash flow tells you whether you can continue operating. A firm can survive for a long time with low profit—but not without cash.
If you’re not actively tracking and forecasting cash flow, you’re likely:
- Making decisions without full visibility
- Risking overdrafts, missed payroll, or late tax payments
- Feeling constant stress—even in seasons of growth
For law firms that are expanding, adding staff, or increasing marketing spend, this gap only widens unless it’s managed with intention.
What Smart Firm Owners Do Differently
They don’t guess. They track.
They know how much cash is coming in, when it’s expected, and what fixed and variable costs are hitting each month. They keep operating and trust accounts clearly separated. They forecast—not just review—so they can plan ahead for lean months or large expenses.
And critically, they use tools and professionals to interpret the numbers—not just store them.
A Better Way Forward
If you’ve felt this pain—of looking successful on paper but not in your bank account—it doesn’t mean your firm is failing. It means your systems need to catch up to your success.
The goal isn’t just to be profitable. The goal is to be profitable and cash-positive. That means:
- Clean, up-to-date books
- Trust account compliance
- Cash flow forecasting
- Tax-aware compensation strategy
- Support from professionals who understand your business model
Let’s Bridge the Gap Between Your Numbers and Reality
At Prestige Accounting and Consulting, we help law firm owners like you:
- See the difference between profit and cash flow
- Forecast upcoming revenue and expenses
- Optimize owner pay so you’re not guessing
- Stay compliant and cash-ready, even during growth
Book your free consultation and let’s make sure your bank balance reflects the success you’ve built—not the stress you’ve been carrying.
