Cash vs. Accrual: Are You Betting on the Wrong Horse?

Business owners ask me all the time, why would I need to have accrual-based financial reports?   I just need to know where my cash is going, right? 

Well, Ken Kauffman, a veteran CFO in the dental space, gave a great metaphor to understand why.  

Let’s imagine you’re at a racetrack with four horses, each representing a different service in your business. But they’re staggered across the track. One horse has to run a full mile, another three-quarters, another a half mile, and the last only a quarter mile. Now here’s the catch: they all finish at the same finish line.

No matter how fast that last horse runs, it’s going to cross the line way before the horse running the full mile. 

That’s what it’s like when you run your business using a cash basis accounting lens. It looks like one horse is winning when in reality it could be the slowest horse in your business - bottom line, it’s not the full picture of your business and making decisions on a cash-basis only lens can be foolish.

Let’s go deeper on The Problems with Cash Basis ONLY accounting and reporting

Let’s say you collect a large chunk of revenue this month for work done months ago - it’s gonna looks like you had a great month—even if your current operations are slowing down.

The same is true on the expense side. Maybe payroll hit three times in February, or you paid a big annual insurance premium all at once. Suddenly February looks terrible on paper, even though nothing in your business fundamentally changed.

The problem here is —cash basis ONLY accounting creates noise. It can make a healthy business look like it’s in trouble, or hide early warning signs that a business is actually declining. You’re only cheering at the finish line without fully understanding how far that horse had to run, thus causing you to celebrate a win that didn’t occur in reality.

The Accrual Advantage

Now let’s flip the lens. Accrual accounting matches your revenues with the expenses that actually produced them. Instead of seeing just what’s in the bank, you see what’s really happening inside your business. 

Accrual is the tool that tells you:

• Which services or procedures are truly profitable.

• Where expenses are trending higher than they should.

• Whether your growth is sustainable or if it’s masking underlying problems.

It gives you confidence and precision. With accrual, you can forecast with far greater accuracy. Decision-making gets clearer, like wiping the fog off your windshield. That’s why once business owners see their numbers through an accrual lens, it feels almost addictive—you don’t want to go back to guessing.

Why It Matters

Here’s the truth: businesses in growth mode, especially medical and entrepreneurial practices, can’t afford to rely on cash basis ONLY. If you’re scaling, you’re constantly investing in staff, equipment, or expansion. Cash basis may show you’re flush with cash today, but hide the fact that your expenses are about to outpace your revenue.

On the flip side, if your business is struggling, cash basis might delay the bad news. Collections from last month’s work might prop up this month’s numbers, masking a decline in patient volume or sales until it’s too late to correct course.

Accrual accounting tells you where you’ve been, where you are, and where you’re going. It’s the map that lets you steer your business with clarity, instead of reacting once you’re already in a ditch.

 So, back to our race track analogy. Cash basis accounting convinces you the fastest horse is winning—but it’s only because it had a head start. Accrual accounting lets you see the full race, the true distances, and which horse is really driving results.

At Visibility CFO & Tax, we help clients shift from short-term snapshots to an accrual lens that provides accuracy, context, and confidence. Because you can’t grow what you can’t see clearly.

VISIBILITY CFO & TAX - Stop guessing and start seeing clearly. Let’s do this.