“On paper, we’re doing well… but it doesn’t feel like it”
This conversation usually happens quietly.
An education business director — often a nursery owner, training provider, or private education company — sits down with us and says something like:
“The accounts say we’re profitable.
But every month feels tight.
I don’t understand where the money’s going.”
They’re not mismanaging the business.
They’re not careless.
They’re usually working harder than ever.
But they’re confusing profit with cash — and in education-sector businesses, that confusion is incredibly common.
At Accounting Matters, this is one of the most important conversations we have with education directors. Because until you understand why profit doesn’t equal cash, stress creeps in quietly and stays far too long.
The education-sector reality: profit and cash don’t move together
Education businesses operate differently from many other limited companies.
They often have:
- Income that arrives in blocks (terms, cohorts, funding stages)
- Large, regular staffing costs
- Ethical pressure to reinvest rather than extract profit
- VAT complications depending on services
- Directors who “top up” themselves only when needed
This makes it very easy to be profitable on paper but still feel permanently on edge.
The key issue is this:
Profit is an accounting calculation.
Cash is what keeps the doors open.
And the two rarely move in sync.
A familiar story: growth without breathing space
Many education businesses experience cash pressure after growth, not before it.
A new intake starts well.
Staff numbers increase.
Resources are upgraded.
Marketing improves.
From the outside, the business looks healthy.
But inside:
- Cash buffers disappear
- Directors stop paying themselves regularly
- Tax bills become worrying rather than manageable
- Decisions feel reactive
This isn’t failure.
It’s a lack of cashflow visibility.
1. VAT: money that was never really yours
VAT is one of the biggest causes of cash stress in education-sector limited companies.
Even where education services are VAT-exempt, many businesses still have:
- Mixed supplies
- VATable add-ons
- Incorrect assumptions about exemptions
- Poor tracking
Where VAT is charged, the problem is often psychological.
Directors see VAT money land in the bank and think:
“We’ll sort that later.”
Then later arrives — and the cash is gone.
The education-sector VAT trap
We regularly see:
- VAT being used to smooth term-time cash dips
- VAT bills landing after quieter periods
- No separation between trading cash and tax cash
VAT doesn’t create problems suddenly.
It creates them quietly — then all at once.
2. Corporation Tax: the delayed shock
Corporation Tax is another major contributor to the “profitable but broke” feeling.
Because it’s paid months after the year-end, it creates a false sense of security.
Directors think:
“We’ve got time.”
But during that time:
- Cash is reinvested
- Director drawings continue
- Buffers disappear
Then the bill arrives — often at the worst possible moment.
At Accounting Matters, one of the first things we help education clients do is:
- Understand what portion of cash isn’t spendable
- Separate profit from usable money
- Remove the illusion of comfort
3. Director pay decisions quietly draining cash
This links directly to Blog 1.
In education businesses, directors often:
- Pay themselves irregularly
- Reduce pay during quiet months
- “Catch up” when income improves
This feels sensible — but without structure, it creates instability.
We commonly see:
- Dividends taken without checking profits
- Personal bills paid directly from the business
- Director’s loan accounts drifting into danger
Cashflow doesn’t collapse because of one big decision.
It erodes because of many small, well-meaning ones.
4. Staff costs: stable, but unforgiving
Education businesses are people businesses.
Staff costs are often:
- The largest expense
- Relatively fixed
- Emotionally difficult to reduce
Wages must be paid:
- Whether income arrives or not
- Whether funding is delayed or not
- Whether the term is busy or quiet
This means cashflow must absorb fluctuations elsewhere — and if it can’t, pressure lands squarely on the director.
5. Growth costs nobody budgets for
Growth in education isn’t just more income.
It brings:
- Recruitment costs
- Training time
- Systems upgrades
- Compliance requirements
- Increased admin and payroll complexity
These costs often hit before income stabilises — creating a squeeze that catches directors off guard.
This is why many education businesses feel:
“We grew — and everything got harder.”
6. The missing piece: forecasting
One of the biggest differences between calm education directors and stressed ones is this:
Visibility.
Many businesses rely on:
- Bank balance checks
- Historical accounts
- Gut feeling
But cashflow requires:
- Forward planning
- Awareness of upcoming tax
- Understanding of seasonal patterns
- Realistic director pay planning
Without forecasting, every tax bill feels like a surprise — even when it shouldn’t.
Why year-end accounts don’t solve cashflow problems
Year-end accounts are essential.
But they:
- Look backwards
- Confirm what already happened
- Arrive long after decisions were made
Cashflow problems are caused during the year, not at the year-end.
This is why many education directors say:
“The accounts look fine — but it doesn’t help me sleep.”
How cashflow stress really shows up
Cashflow issues in education businesses don’t always look dramatic.
They look like:
- Delaying personal pay
- Avoiding bank balances
- Dreading VAT quarters
- Feeling uneasy before payroll
- Worrying about tax long before it’s due
These are not accounting failures.
They’re warning signs.
How Accounting Matters helps education businesses regain control
We don’t just say “manage your cash better”.
We help by:
- Explaining why cash feels tight
- Separating profit from spendable cash
- Planning VAT and Corporation Tax properly
- Aligning director pay with affordability
- Introducing forecasting that reflects term-time reality
Most importantly, we help directors stop feeling like they’re guessing.
A story we love to see change
When education directors understand cashflow:
- Decisions become calmer
- Pay becomes predictable
- Growth feels exciting again
- Stress reduces — visibly
The numbers stop feeling like an enemy and start becoming a tool.
A final thought for education-sector directors
If your education business is profitable but cash feels uncomfortable, something isn’t wrong.
Something just isn’t visible.
Cashflow problems aren’t a sign of failure.
They’re a sign that the business has outgrown guesswork.
And once visibility improves, everything else follows.