Why Your Profit & Loss Statement Isn’t Telling the Full Truth

Jan 30

January Workshop Recap: Cracking the Cash Flow Code

We kicked off our 2025 workshop series with a question that stumps even experienced business owners:
“If my Profit & Loss statement says I made money, why doesn’t it feel like it?”

In our January session, Michelle Scribner unpacked this disconnect and gave attendees a clear, actionable framework for understanding where the cash really goes. If your bank balance doesn’t match your reported profits, you’re not alone. More importantly, you’re not imagining things.

What You See vs. What You Feel

Your Profit & Loss statement shows how much you earned and spent on paper, but it doesn’t capture all the ways cash actually moves through your business. Four common culprits behind “missing” money:

Credit card payments for prior-year expenses
Loan principal payments, which don’t show up as P&L expenses
Asset purchases like equipment or furniture
Owner distributions (what you’ve paid yourself)

In one real-world client example, the P&L showed an $18,756 profit, but the bank account was down $24,000. The money wasn’t lost; it just wasn’t visible on the P&L. Once we walked through the Balance Sheet, the full picture became clear.

Why You Need Both Reports

In this session, we emphasized how pairing your Profit & Loss with your Balance Sheet gives you the clarity to:

Spot cash flow issues before they become emergencies
Plan for debt repayments and capital investments
Understand where your profit actually goes
Set pricing and spending strategies that match your real numbers
Make confident, forward-looking decisions, especially if your income fluctuates seasonally

Introducing Profit First

To help make better use of your cash (and avoid overextending), Michelle introduced the Profit First system. It’s a practical, behavior-based approach to managing cash flow.

Key concepts include:

Use separate bank accounts for profit, taxes, and owner pay
Allocate percentages of revenue before spending begins
Create healthy financial habits by only “seeing” what’s safe to spend

This structure removes the guesswork and reduces the risk of cash flow surprises. It’s especially helpful when planning for growth, staffing, or unexpected expenses.

What You Can Do Next

If your P&L is telling one story and your cash tells another, here’s how to take control:

Review your P&L and Balance Sheet side by side
Identify payments not reflected on your P&L, such as credit cards or loan principal
Track owner draws—these affect your bank balance even if they don’t show up in profit
Implement Profit First, even if you start small (like setting aside 1% for profit)

By combining financial visibility with proactive cash management, you can start making decisions based on facts, not feelings.

What’s Next?

In February, we’ll dive into how your Chart of Accounts affects the decisions you make every month.

“What Exactly Should Your Chart of Accounts Look Like, and Why Does It Matter?”
This next session will help you organize your financial data so it’s useful—not just accountant-friendly.

Read the February Blog: What Exactly Should Your COA Look Like, and Why Does It Matter?