The cash you collect this month isn't all yours yet.
A prepaid annual membership pays you today for service delivered over the next several months. During growth, cash collected can run well ahead of revenue actually earned — see the gap, and the deferred revenue balance sitting behind it.
Illustrative estimate · Not accounting advice
Read next
Deferred Revenue: Why Growing Membership Cash Can Hide a Cash Flow Trap
A prepaid membership or annual plan pays you today for service you deliver over months. During growth, the cash collected each month can run well ahead of what's actually been earned — and the gap is a liability, not profit, until it's slowed down or reversed.
Filing & complianceCase Study: A Walnut Creek Gym's Trainers Were Never Legally Contractors
A boutique fitness studio paid its trainers on 1099s for years — standard practice across the industry, and also not legal in California. Running the actual classification test, and the real cost of fixing it, changes the math less than the owner feared.
Cash flow & operationsAccrual vs Cash Basis Accounting: Which Method Should Your Business Use?
Cash basis recognizes income when received and expenses when paid — deferring taxes and staying simple. Accrual recognizes income when earned. Most small businesses can and should use cash basis. Year-end timing strategies that only work on cash basis.