Cash vs. Revenue: Why Knowing the Difference Can Make or Break Your Business

Not long ago, I sat down with a client who runs a fast-growing SaaS company. She was

feeling great! Her cash balance had jumped after a round of annual subscription renewals

hit the bank. But when we looked deeper, the story wasn’t quite as rosy. The “extra” cash

wasn’t really profit, it was advance payment for services her company still had to deliver

over the next 12 months. If she spent it all like it was revenue, she’d find herself scrambling

to cover payroll and server costs six months down the line.

This moment is a classic example of a trap I see business owners fall into all the time:

confusing cash received with revenue earned. On paper, they sound like the same thing.

In practice, they can tell two very different stories about your financial health.

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Cash Basis vs. Accrual Basis, The Core Difference

• Cash basis: You count money when it actually hits (or leaves) the bank.

• Accrual basis: You record revenue when it’s earned and expenses when they’re

incurred, regardless of when the money moves.

Neither method is inherently “bad.” But the approach you use for decision-making can

drastically change how you see your business.

Let’s break it down across three common business models I work with: service-based

firms, SaaS, and consumer packaged goods (CPG).

1. Service-Based Businesses

Imagine a marketing agency that collects a $30,000 retainer in January for six months of

work.

• Cash view: January looks like a blockbuster month, followed by five “lean” ones.

• Accrual view: Revenue is recognized evenly across six months, showing steady

performance.

The risk: If you look only at cash, you might overstaff in January or underinvest later, leading

to cash crunches.

2. SaaS Companies

For SaaS, cash and revenue rarely align neatly. Customers often pay upfront, but services

are delivered monthly.

• Cash view: A big spike in January (when subscriptions renew), then a dry spell.

• Accrual view: Revenue spreads across the year, making forecasting and runway

planning much more realistic.

The risk: If you treat upfront payments as “profit,” you’ll overspend, only to realize halfway

through the year you’ve run out of fuel.

3. Consumer Packaged Goods (CPG)

CPG companies deal with inventory and payment terms, which adds another layer of

complexity.

• Cash view: You may ship $100,000 worth of goods to a retailer in March but won’t

get paid until May. On a cash basis, March looks weak, May looks amazing.

• Accrual view: Revenue is booked when the product ships, helping align costs of

goods sold and giving you a clearer picture of profitability by month.

The risk: Without accrual accounting, you’ll struggle to understand margins and production

needs.

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Why This Matters for Decision-Making

If you’re running a $1M–$20M business, cash-only reporting leaves you vulnerable. It can

make you feel flush when you’re actually skating on thin ice, or broke when in reality your

pipeline is strong. Accrual accounting, while more complex, gives you visibility into your

true performance, the insight you need to plan growth, manage debt, and make hiring

decisions.

5 Practical Tips to Avoid the Cash vs. Revenue Trap

1. Run dual reports: Look at both cash flow statements and accrual-based P&Ls.

Cash shows liquidity, accrual shows performance. You need both.

2. Use deferred revenue accounts: If you collect upfront, track it as a liability (debt)

until it’s earned. This keeps you honest about what’s “yours to spend.”

3. Forecast cash separately: Even if you’re accrual-based, maintain a rolling 13-week

cash forecast to avoid surprises.

4. Match revenue with expenses: This is key in CPG! Pair product sales with their

associated production costs to see real margins.

5. Set aside “pre-earned” cash: For SaaS and services, consider putting a portion of

upfront payments into a separate account so you’re not tempted to overspend.

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Final Thought

Cash is always king queen but it’s not the whole kingdom. If you’re only looking at money in

the bank, you might be flying blind. Understanding the difference between cash received

and revenue earned will help you make smarter decisions, avoid unnecessary stress, and

build the kind of business that grows with confidence.

Work with a fractional controller or CFO: A pro can help translate the numbers into a

story that makes sense for your unique business model. If you’re ready to gain clarity and

put the right systems in place, I’d love to help. Visit Steady Hand Accounting to learn how I

partner with business owners like you to streamline financial operations and bring peace of

mind back to your numbers.

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