# Cash and profit *Watch the bank account, not the margin.* --- You pull up the quarterly results. Revenue is up 25%, EBITDA margin holding at 20%. The business added forty new accounts last quarter and the pipeline is the strongest it's been in two years. You close the tab feeling good. Then the finance director calls. The overdraft is nearly maxed out. Could you hold off on that new hire until cash comes in? You look at the numbers again. Revenue up. Margins stable. Where did the money go? --- Your software business does £10m in revenue with a 20% EBITDA margin. That's £2m of reported profit. Your engineering team spent £1.5m this year building new features and platform improvements. That spend gets capitalised, parked on the balance sheet, and amortised over three years. EBITDA adds back the amortisation and never sees the original cash outflow. Those engineers were paid monthly. £125k a month, out the door. None of it shows up in the headline. Infrastructure adds another £300k a year. Servers, tooling, security. EBITDA adds back the depreciation, treating it as non-cash. The servers will need replacing, and replacement costs real money. £2m of EBITDA. £1.8m of spending it doesn't capture. The bank balance moved by £200k. --- Now look at when even that cash arrives. Your enterprise customers pay on net-45 terms. At £10m revenue, roughly £1.25m sits in receivables at any given time. Revenue the income statement has recognised, cash the bank account hasn't seen. Last year at £8m, receivables were about £1m. Growth to £10m tied up another £250k in unpaid invoices. The P&L recorded the revenue immediately. The cash follows six weeks later. Suppose collection discipline slips during the growth push. Your team is busy winning new work, nobody is chasing invoices, and average collection time drifts from 45 to 60 days. Receivables jump to £1.65m. Another £400k locked up, invisible to the income statement. --- FCF conversion reconciles all of this. Free cash flow divided by EBITDA: what percentage of reported profit actually showed up as cash? Above 80% consistently, the earnings are real. Below 60%, something is eating profit before it reaches the bank. A business trading at 10x EBITDA with 90% conversion is genuinely on 11x free cash flow. The same multiple with 50% conversion is effectively 20x. Same price tag, very different economics. --- Back to your quarterly results. Revenue up 25%. EBITDA margin 20%. £2m of reported profit. Run the conversion. In this business, capitalised development and infrastructure alone consumed 90% of EBITDA. Receivables growth took most of the rest. The headline said £2m of profit. The bank saw almost none of it. The margin tells you the model works. The cash tells you whether you can afford to grow. ---