One of the most common conversations we have with property directors starts like this:
“The accounts say we made a profit… so why does it feel like there’s never any money?”
It’s a fair question.
And for property limited companies, it’s incredibly common.
On paper, everything looks healthy.
In reality, cash feels tight, tax bills feel stressful, and every large payment causes a knot in your stomach.
This isn’t bad luck.
It isn’t poor property choices.
And it certainly isn’t unique to you.
It’s the result of how property profits are reported versus how cash actually moves.
In this blog, we’ll explain:
- Why profit and cash are not the same thing
- Why property companies are especially vulnerable
- Where the money really goes
- And how directors regain control before problems escalate
Profit and Cash Are Not the Same (And Never Have Been)
Let’s start with the biggest misunderstanding.
Profit is an accounting calculation.
Cash is what’s in the bank.
They are linked — but they are not the same.
Profit is calculated by:
- Rental income earned
- Minus allowable expenses
- Adjusted for accounting rules
Cash is affected by:
- When money is actually received
- Mortgage payments
- Personal drawings
- Tax payments
- Capital spending
For many business owners, these differences are manageable.
For property companies, they can be dramatic.
Why Property Companies Feel This More Than Others
Property limited companies sit in a strange space.
They often:
- Generate steady income
- Show consistent profits
- Hold valuable assets
But they also:
- Pay large mortgage amounts every month
- Have significant capital repayments
- Carry costs that don’t reduce profit immediately
- Experience timing gaps between income, costs, and tax
This creates a perfect storm where profits look fine, but cash feels permanently under pressure.
Mortgage Payments: The Biggest Culprit
This is where most directors have their “lightbulb” moment.
Your mortgage payment usually includes:
- Interest
- Capital repayment
From an accounting perspective:
- Interest is an expense
- Capital repayment is not
That means:
- Your bank balance goes down
- Your profit does not reflect the full payment
So your accounts can say “profit”
while your cash is quietly drained every month.
Multiply that across multiple properties and years — and the gap becomes significant.
Capital Expenditure: Paid in Cash, Spread in Accounts
Another major cause of confusion is property improvements.
Examples include:
- Kitchens and bathrooms
- Structural works
- Major refurbishments
- Extensions or conversions
You may pay tens of thousands in cash — but the cost is:
- Spread over years
- Or treated differently in the accounts
Again:
- Cash leaves immediately
- Profit barely moves
To a director reviewing year-end accounts, this can feel baffling.
Tax Timing: The Bill Arrives Long After the Cash Is Gone
Tax is one of the biggest reasons property companies feel “caught out”.
Corporation tax:
- Is based on profit
- Is payable months after the year end
That delay is dangerous.
By the time the tax bill arrives:
- Cash may already have been used
- Dividends may already have been taken
- Mortgage payments have continued
- Personal spending has moved on
Suddenly, a bill arrives for money that no longer feels available.
This isn’t poor discipline — it’s poor visibility.
Dividends Taken Without a Cash Plan
In Blog 1, we talked about salary vs dividends.
Here’s where dividends collide with cashflow.
Many property directors:
- Take dividends based on “profit”
- Assume money in the bank = money available
- Don’t set aside tax as they go
But dividends:
- Create personal tax liabilities
- Reduce company cash
- Often ignore future obligations
We regularly see directors pay themselves comfortably — only to feel squeezed months later when:
- Corporation tax is due
- Personal tax bills land
- Mortgage payments continue
The issue wasn’t dividends.
It was dividends without forecasting.
Director’s Loan Accounts Hide the Problem (At First)
When cash is tight, director’s loan accounts often quietly fill the gap.
Examples:
- Paying personal costs from the company
- Taking money “temporarily”
- Planning to sort it later
At first, this feels harmless.
But over time:
- The loan account becomes overdrawn
- Tax consequences build
- Repayment pressure increases
Many directors don’t realise they have a cashflow issue until the loan account becomes the problem everyone is suddenly worried about.
Why Annual Accounts Don’t Warn You in Time
Here’s the uncomfortable truth:
Annual accounts are historic documents.
They tell you what already happened.
They don’t:
- Predict future cash
- Warn you early
- Help you plan withdrawals
- Show upcoming tax pressure
By the time the accounts are done:
- The year is over
- Decisions have already been made
- Cash has already moved
For property companies, this is simply too late.
The Illusion of “Retained Profits”
Another phrase that causes confusion is retained profits.
Directors often hear:
“You’ve got plenty of retained profits.”
But retained profits:
- Are an accounting figure
- Do not equal cash
- Can be tied up in properties
- May already be spoken for
Seeing retained profits doesn’t mean:
- You can safely extract them
- The company is liquid
- Cashflow is healthy
This misunderstanding causes more stress than almost anything else we see.
How Cashflow Problems Quietly Escalate
Left unchecked, “profitable but no cash” turns into:
- Anxiety around tax deadlines
- Avoiding HMRC letters
- Delaying personal drawings
- Borrowing personally to fund the company
- Losing confidence in the numbers
None of this happens overnight.
It builds slowly — and silently.
What Strong Property Companies Do Differently
The property companies that don’t struggle with this have one thing in common:
They separate profit reporting from cash planning.
They use:
- Cashflow forecasts
- Regular reviews
- Clear tax provisions
- Planned dividend strategies
They know:
- What money is genuinely available
- What must be kept back
- What future commitments exist
This clarity changes everything.
Why Management Accounts Matter for Property Companies
Management accounts aren’t about complexity — they’re about control.
For property directors, they help:
- Track real cash movement
- Understand mortgage impact
- Plan tax before it’s due
- Avoid nasty surprises
- Make confident decisions
Most importantly, they allow you to:
Decide what to do before the problem exists.
This Isn’t About Doing More — It’s About Seeing Clearly
Most property directors are already working hard.
The problem isn’t effort.
It’s visibility.
When you can clearly see:
- Where cash goes
- What’s coming next
- What’s genuinely safe to take
The stress drops dramatically.
Final Thought: Profit Is a Number. Cash Is Survival.
Property companies can be profitable for years — and still fail through poor cash planning.
Understanding the difference between profit and cash is not “advanced accounting”.
It’s essential leadership.
If your accounts say you’re doing well but it never feels that way, that disconnect is your signal — not your failure.