By Hammond & Co
One of the most common conversations we have with property company 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 extremely common.
On paper, everything looks healthy.
In reality, cash feels tight, tax bills feel stressful, and every large payment creates hesitation.
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 guide, we’ll explain:
- Why profit and cash are not the same thing
- Why property companies are especially vulnerable
- Where the money really goes
- How directors regain control before issues escalate
Profit and Cash Are Not the Same (And Never Have Been)
The biggest misunderstanding is assuming profit equals money available to spend.
Profit is an accounting calculation.
Cash is what’s in your bank account.
They are connected — 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 small businesses, the difference is manageable.
For property companies, the gap can become significant.
Why Property Companies Feel This More Than Most
Property limited companies sit in a unique financial position. They often:
- Generate steady rental income
- Show consistent profits
- Hold valuable long-term assets
But they also:
- Make large monthly mortgage payments
- Repay capital as well as interest
- Carry costs that don’t immediately reduce profit
- Experience timing gaps between income, expenditure and tax
This combination creates a scenario where accounts can look strong while cash remains under constant pressure.
Mortgage Payments: The Biggest Culprit
This is often the “lightbulb moment” for directors.
A typical mortgage payment includes:
- Interest
- Capital repayment
From an accounting perspective:
- Interest is an expense
- Capital repayment is not
So:
- Your bank balance reduces every month
- Your profit does not reflect the full payment
Your accounts can show a profit while your cash is steadily reduced in the background.
Multiply that across several properties and multiple years, and the gap becomes substantial.
Capital Expenditure: Paid in Cash, Spread in the Accounts
Property improvements are another major source of confusion.
Examples include:
- Kitchens and bathrooms
- Structural works
- Major refurbishments
- Extensions or conversions
You might spend significant sums in cash, yet the accounting treatment:
- Spreads the cost over several years, or
- Treats it differently from day-to-day expenses
The result:
- Cash leaves immediately
- Profit barely changes
For directors reviewing year-end figures, this disconnect can feel baffling.
Tax Timing: The Bill Arrives Long After the Cash Has Gone
Tax timing is one of the main reasons property companies feel caught out.
Corporation Tax:
- Is based on profit
- Is payable months after the year end
That delay is risky.
By the time the bill arrives:
- Cash may already have been used
- Dividends may already have been taken
- Mortgage payments have continued
- Personal spending decisions have moved on
Suddenly, a sizeable bill appears for money that no longer feels available.
This is rarely a discipline issue — it is usually a visibility issue.
Dividends Taken Without a Cash Plan
Dividends are often where profit and cashflow collide.
Many property directors:
- Take dividends based on reported profit
- Assume money in the bank equals money available
- Don’t set aside tax as they go
But dividends:
- Create personal tax liabilities
- Reduce company cash reserves
- Often ignore future obligations
We frequently see directors withdraw income comfortably, only to feel squeezed months later when Corporation Tax, personal tax and ongoing mortgage commitments all converge.
The issue isn’t dividends themselves — it’s dividends without forecasting.
Director’s Loan Accounts Can Hide the Problem
When cash becomes tight, director’s loan accounts often bridge the gap quietly.
Common examples include:
- Paying personal costs from the company
- Taking money “temporarily”
- Planning to reconcile it later
At first, this feels manageable.
Over time:
- The loan becomes overdrawn
- Tax implications build
- Repayment pressure increases
Many directors only recognise a cashflow problem once the loan balance becomes the focus of concern.
Why Annual Accounts Don’t Warn You in Time
Annual accounts are historical documents.
They show what has already happened — not what’s coming next.
They do not:
- Predict future cash needs
- Warn you early
- Help plan withdrawals
- Highlight upcoming tax pressure in real time
By the time accounts are finalised:
- The year has ended
- Decisions have been made
- Cash has already moved
For property companies, that’s often too late to influence outcomes.
The Illusion of “Retained Profits”
Another phrase that causes confusion is retained profits.
Directors are often told, “You’ve got plenty of retained profits.”
But retained profits:
- Are an accounting figure
- Do not equal available cash
- May be tied up in properties or reinvested
- Can already be allocated to future commitments
Seeing retained profits does not automatically mean:
- You can safely extract funds
- The company is liquid
- Cashflow is strong
This misunderstanding is one of the biggest drivers of financial stress we encounter.
How Cashflow Pressure Quietly Escalates
Left unmanaged, the “profitable but no cash” situation can gradually turn into:
- Anxiety around tax deadlines
- Avoidance of HMRC correspondence
- Delayed personal income
- Personal borrowing to support the company
- Loss of confidence in financial figures
This rarely happens suddenly.
It builds slowly — and often unnoticed.
What Strong Property Companies Do Differently
The property businesses that avoid these pressures tend to share one key habit:
They separate profit reporting from cash planning.
They use:
- Cashflow forecasts
- Regular financial reviews
- Clear tax provisions
- Planned dividend strategies
They understand:
- What money is genuinely available
- What must be retained
- What future commitments exist
That clarity changes decision-making completely.
Why Management Accounts Matter for Property Companies
Management accounts are not about complexity — they are about control.
For property directors, they help:
- Track real cash movement
- Understand mortgage impact
- Plan tax before it becomes urgent
- Avoid unwelcome surprises
- Make confident, informed decisions
Most importantly, they allow you to act before problems arise rather than after.
This Isn’t About Doing More — It’s About Seeing Clearly
Most property directors are already working hard.
The issue is rarely effort.
It’s visibility.
When you can clearly see:
- Where cash is going
- What payments are coming next
- What is genuinely safe to withdraw
Financial stress reduces significantly.
Final Thought: Profit Is a Number. Cash Is Survival.
Property companies can appear profitable for years and still struggle through poor cash planning.
Understanding the difference between profit and cash isn’t advanced accounting — it’s essential business leadership.
If your accounts say you’re doing well but it never quite feels that way, that disconnect isn’t a failure.
It’s a signal that clearer visibility and planning are needed — and once addressed, control becomes far easier to maintain.