Why Your Business Is Profitable But Still Low on Cash
This is one of the most common—and confusing—scenarios for small business owners: your Profit & Loss shows a healthy profit, but your bank account tells a different story.
You’re Showing a Profit—So Why Does Cash Feel Tight?
Last week, I had a potential client call in which they said, I’m showing a $15K profit this month, but I can’t pay my bills. What am I doing wrong?”
The answer? Nothing at all.
She was just looking at the wrong reports to understand her financial reality.
This is a common scenario for business owners who rely only on their Profit & Loss (P&L) and Balance Sheet. While those two reports are essential, they don’t capture everything that affects your cash.
Let’s walk through what happened, and how to avoid making decisions based on incomplete data.
The P&L Looked Great, But the Cash Was Gone
Her Profit & Loss showed $15,000 in net profit for the month. On the surface, it looked like a great month.
But after digging in, here’s what had also happened:
$8,000 paid toward credit card balances
$3,000 in loan repayments
$5,000 taken out of the business for personal expenses
$2,000 spent on inventory for future use
Those are real cash outflows. But none of them appear on a Profit & Loss statement.
When we pulled her Cash Flow Report, the picture became clear:
Her business had a net cash outflow of $3,000 that month—despite showing a $15K “profit” on paper.
Why the Profit & Loss Statement and Balance Sheet Fall Short for Cash Flow
Here’s the breakdown of what each report does and doesn’t do:
Profit & Loss Statement (P&L ):
Shows whether your income exceeded your expenses—but only operating income and expenses
➤ Excludes debt payments, asset purchases, inventory prepayments, and owner distributionsBalance Sheet:
Shows what you own (assets) and what you owe (liabilities), plus your equity
➤ It’s a snapshot—not a flow. It doesn’t show the movement of money month to month
What’s missing? The actual path of your cash in and out of the business.
That’s what the Cash Flow Statement is for.
The Cash Flow Report: Your Missing Link
The Cash Flow Report captures:
Loan repayments
Credit card payments
Owner draws/distributions
Inventory purchases before they’re expensed
Tax payments
Equipment purchases
Timing differences in payables and receivables
All the real-world movement of money that can make or break your ability to operate smoothly.
What Happens When You Don’t Use All Three Reports
If you’re basing decisions on your P&L alone, you may:
Feel surprised when you “can’t afford” things despite showing a profit
Struggle to understand where your money went
Miss key timing issues that affect cash availability
Be over-optimistic about growth investments or hiring
And if you're only checking your Balance Sheet for a cash number, you’re seeing an endpoint, not the story behind how that balance got there.
What You Can Do Right Now
Here’s how to get clearer on your actual cash situation:
1. Start Reviewing All Three Reports
Don’t just rely on your Profit & Loss alone. Ask your bookkeeper to include a Cash Flow Report alongside your monthly financials. If your business has tighter cash cycles or high transaction volume, consider requesting weekly cash flow updates or breaking the monthly report down by week for more detailed insights.
2. Separate Outflows from Expenses
Know that things like loan payments, inventory buildup, and credit card payoffs reduce cash, even if they don’t touch your Profit & Loss.
3. Forecast Beyond the P&L
It’s easy to plan around revenue, but real strategy means forecasting your cash position, especially if you carry debt or invest ahead of revenue.
4. Use Strategic Support When Needed
You don’t need to hire a full-time CFO. But having quarterly or even one-off sessions with a financial expert can help you tie your reports together and prevent blind spots.
Why This Matters for Every Business Owner
Whether you’re a coach, an e-commerce founder, or running a creative agency, your financial reports should help you understand more than just profitability.
Your P&L shows performance
Your Balance Sheet shows stability
Your Cash Flow Report shows reality
Together, they give you the insight you need to manage growth, avoid surprises, and plan with confidence.
If your books are technically clean but leave you guessing when it comes to cash, there’s a better way. Our monthly and quarterly bookkeeping services always include the P&L, Balance Sheet, and Cash Flow Report, plus guidance to help you actually understand what they mean.
