Learning CenterStage 1 · FoundationsGuide 3 of 22
Profit & Cash 101
Profit Isn't Cash
Why a profitable month can drain the bank.
Profit and cash are measured differently, so a month can look good on the P&L while the bank balance falls. Follow one month of the example company from its net profit to what actually happened in the bank.
One month, same company: profitable on paper, short on cash
The P&L says
Net ProfitThe bank says
Change in cashWhere the cash went
Net Profit
From the P&L. A score, not a bank balance.
+$11,071
Depreciation
An expense on the P&L, but no check was written.
+$3,500
Customers Paid Slower
Receivables grew. Earned, but not in the bank yet.
−$15,000
Loan Principal
Only interest shows on the P&L. Principal still leaves the bank.
−$4,500
Owner Draws
Not an expense on the P&L, but very real cash out.
−$8,000
Estimated Taxes
The owner's quarterly tax payment on the profit.
−$4,000
Change in Cash
A profitable month that still drained the bank.
−$16,929
What to do about it
Read all three reports
P&L: did we make money?
Balance Sheet: what do we own and owe?
Cash Flow: where did the cash go?
Speed up cash in
Invoice the day work is done. Take deposits on installs, bill large jobs in stages, and put maintenance on autopay.
Plan cash out
Schedule owner draws, set tax money aside every month, and match loan terms to how long the equipment lasts.
Try it with your own month
Starts with the example company's numbersWhere did your cash go?
Start from one month's net profit, then add and take away the cash moves the P&L doesn't show.
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