“On paper, we’re doing well… but it doesn’t feel like it”
This is a conversation we often have quietly.
An education business director — a nursery owner, training provider, or private education company — sits down with us and says:
“The accounts show a profit.
But every month feels tight.
I can’t see where the money is actually going.”
They’re not mismanaging the business.
They’re not careless.
In most cases, they’re working harder than ever.
What they’re experiencing is one of the most common — and misunderstood — challenges in the education sector: confusing profit with cash.
At Hammond & Co, this is one of the most important conversations we have with education-sector directors. Because until you understand why profit does not equal cash, pressure builds quietly — and stays far longer than it needs to.
The education-sector reality: profit and cash rarely move together
Education businesses operate very differently from many other limited companies. They often deal with:
- Income arriving in blocks (terms, cohorts, staged funding)
- Large, regular staffing costs
- Ethical pressure to reinvest rather than extract profit
- VAT complexity depending on services and structure
- Directors paying themselves only when they feel they can
This combination makes it entirely possible — and very common — to be profitable on paper while still feeling financially stretched.
The key distinction is simple:
Profit is an accounting result.
Cash is what keeps the business operating.
And the two rarely move in sync.
Growth without breathing space: a familiar pattern
Cashflow pressure in education businesses often appears after growth, not before it.
A new intake performs well.
Staff numbers increase.
Resources are upgraded.
Marketing improves.
From the outside, the business looks healthy and successful.
Internally, however:
- Cash buffers shrink
- Directors stop paying themselves consistently
- Tax bills feel worrying rather than manageable
- Decisions become 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 most significant causes of cash stress in education-sector limited companies.
Even where core education services are VAT-exempt, many businesses still face:
- Mixed supplies
- VATable add-ons
- Incorrect assumptions around exemptions
- Inconsistent tracking
Where VAT is charged, the issue is often psychological.
VAT lands in the bank and feels like available cash.
“We’ll deal with that later.”
Later arrives — and the cash is already gone.
The education-sector VAT trap
We regularly see:
- VAT used to smooth term-time cash dips
- VAT bills landing after quieter periods
- No clear separation between trading cash and tax cash
VAT rarely causes problems suddenly.
It causes them quietly — then all at once.
2. Corporation Tax: the delayed shock
Corporation Tax creates a similar illusion.
Because it’s paid months after the year-end, it can feel distant and manageable. Directors think:
“We’ve got time.”
But during that time:
- Cash is reinvested
- Director drawings continue
- Buffers quietly disappear
When the bill arrives, it often does so at the worst possible moment.
At Hammond & Co, one of the first things we help education clients do is:
- Identify which cash is not spendable
- Separate profit from usable money
- Remove the false sense of comfort
3. Director pay decisions quietly draining cash
Director pay links directly to cashflow pressure.
In education businesses, directors often:
- Pay themselves irregularly
- Reduce income during quiet months
- “Catch up” when cash improves
This feels sensible — but without structure, it creates instability.
We commonly see:
- Dividends taken without checking profits
- Personal expenses paid directly from the business
- Director’s loan accounts drifting into risky territory
Cashflow rarely collapses because of one large mistake.
It erodes through many small, well-intentioned decisions.
4. Staffing costs: stable, but unforgiving
Education businesses are people businesses.
Staff costs are usually:
- The largest expense
- Relatively fixed
- Emotionally and practically 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 has to absorb every other fluctuation — and when it can’t, the pressure lands on the director.
5. The hidden cost of growth
Growth in education doesn’t just mean more income. It brings:
- Recruitment and onboarding costs
- Training and compliance time
- Systems and payroll upgrades
- Increased administration
These costs often arrive before income stabilises — creating a squeeze that catches many directors off guard.
This is why we often hear:
“We grew — and everything became harder.”
6. The missing piece: forecasting
The biggest difference between calm education directors and stressed ones is visibility.
Many businesses rely on:
- Bank balance checks
- Historical accounts
- Gut instinct
Cashflow requires something different:
- Forward-looking planning
- Awareness of upcoming tax liabilities
- Understanding of seasonal income patterns
- Structured director pay decisions
Without forecasting, every tax bill feels like a surprise — even when it shouldn’t be.
Why year-end accounts don’t fix cashflow
Year-end accounts are essential.
But they:
- Look backwards
- Confirm what has already happened
- Arrive long after decisions were made
Cashflow problems are created during the year — not at the year-end.
That’s why so many education directors say:
“The accounts look fine… but they don’t help me sleep.”
How cashflow stress really shows up
Cashflow pressure in education businesses is rarely dramatic. It shows up as:
- Delaying personal pay
- Avoiding bank balances
- Dreading VAT quarters
- Feeling uneasy before payroll
- Worrying about tax long before it’s due
These aren’t accounting failures.
They’re early warning signs.
How Hammond & Co helps education businesses regain control
We don’t simply tell directors to “manage cash better”.
We help by:
- Explaining why cash feels tight
- Separating profit from spendable money
- Planning VAT and Corporation Tax properly
- Aligning director pay with real affordability
- Introducing forecasting that reflects term-time reality
Most importantly, we remove guesswork from decision-making.
A change we see — and value — every year
When education directors understand cashflow:
- Decisions become calmer
- Pay becomes predictable
- Growth feels exciting again
- Stress reduces noticeably
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, nothing is “wrong”.
Something simply isn’t visible yet.
Cashflow problems aren’t a sign of failure.
They’re a sign the business has outgrown guesswork.
And once visibility improves, everything else follows.