Introduction
One of the most frustrating things we hear from directors of utility-based limited companies is:
“The accounts say we’re profitable… so why is there never any cash?”
If you sell utilities through a commission-based model, this situation is incredibly common. On paper, your company looks healthy. In reality, you’re watching bank balances closely, delaying drawings, or dipping into personal funds to smooth things over.
This isn’t a failure — it’s usually a cash flow visibility problem, not a profitability one.
In this blog, we’ll explain:
- Why profitable utility businesses often struggle with cash
- The key differences between profit and cash
- Common traps commission-based companies fall into
- Practical steps to regain control
Profit vs Cash: Not the Same Thing
Let’s start with the basics.
Profit is an accounting measure. It looks at income earned and expenses incurred over a period of time.
Cash is literal — what’s sitting in your bank account right now.
A company can be:
- Profitable but cash-poor
- Cash-rich but unprofitable
Utility-based limited companies are especially prone to the first scenario.
Why Utility Businesses Are Prone to Cash Flow Issues
1. Commission Timing Mismatches
Utility income rarely arrives neatly aligned with your accounting periods.
You might:
- Earn commission in one month
- Receive payment weeks later
- See adjustments or clawbacks months after that
Your accounts may recognise income before the cash arrives — creating profit without liquidity.
2. Clawbacks and Adjustments
Clawbacks are one of the biggest cash flow disruptors in the utility sector.
A customer switches, cancels, or defaults — and commission already paid is reclaimed.
If cash has already been drawn out of the business, this can quickly create pressure.
3. VAT Creates False Confidence
VAT is not your money — but it often feels like it is.
Many utility businesses receive VAT-inclusive commission payments and forget that a portion is already owed to HMRC.
When the VAT bill lands, cash flow suddenly tightens.
4. Corporation Tax Is a Future Cash Drain
Corporation tax is calculated on profit, not cash.
This means:
- You may owe tax on income not yet received
- Or on income that was later clawed back
Without planning, this creates a nasty cash shock 9 months after year-end.
5. Directors Drawing Based on Bank Balance
This is one of the most common mistakes we see.
Cash arrives → director takes drawings → future liabilities are forgotten.
Later, when VAT, corporation tax, or clawbacks hit, the business feels squeezed — even though it looked fine before.
The Hidden Cash Drains Directors Overlook
Even lean utility businesses have regular outflows that add up:
- Software subscriptions
- Professional fees
- Marketing costs
- Repayments on overdrawn director loan accounts
Individually small, collectively significant.
Why Annual Accounts Are Not Enough
Annual accounts are backward-looking.
They tell you what has already happened, not what’s about to happen.
For commission-based utility companies, this is too late to manage cash effectively.
What’s needed instead is ongoing visibility.
The Role of Management Accounts
Management accounts bridge the gap between profit and cash.
They help you understand:
- What profits are real and available
- What cash needs to be reserved
- What can safely be withdrawn
For utility businesses, good management accounts should include:
- Commission reconciliation
- VAT forecasting
- Corporation tax provisions
- Director drawings tracking
Cash Flow Forecasting: The Missing Piece
A simple cash flow forecast can be transformative.
It answers questions like:
- Can I afford to take a dividend this quarter?
- Will next month be tight?
- What happens if commission drops or clawbacks increase?
This isn’t about complex spreadsheets — it’s about clarity.
Practical Steps to Improve Cash Control
1. Separate Cash for Tax
Set aside funds monthly for:
- VAT
- Corporation tax
- Personal tax on dividends
Treat this money as untouchable.
2. Review Director Drawings Regularly
Don’t wait until year-end.
Align drawings with:
- Real profits
- Cash forecasts
- Upcoming liabilities
3. Reconcile Commission Statements
Bank receipts alone don’t tell the full story.
Regular reconciliation ensures:
- Income accuracy
- Early visibility of clawbacks
- Fewer surprises
4. Stop Relying on Bank Balance Alone
Your bank balance is a snapshot — not a strategy.
Decisions should be based on:
- Current performance
- Future obligations
- Risk exposure
The Emotional Side of Cash Stress
Cash flow stress is exhausting.
It often leads directors to:
- Second-guess themselves
- Delay decisions
- Avoid looking at the numbers
Ironically, this makes the problem worse.
Clear information reduces stress — even when the numbers aren’t perfect.
How We Help Utility-Based Limited Companies
We help utility businesses:
- Understand the difference between profit and cash
- Put systems in place for visibility
- Plan drawings and dividends safely
- Avoid tax-driven cash shocks
Our focus is proactive support, not just year-end compliance.
Final Thoughts
Being profitable but short on cash doesn’t mean your business is failing.
For utility-based limited companies, it usually means:
- Income timing needs better management
- Cash planning needs improvement
- Decisions are being made without full visibility
With the right support, this is entirely fixable.