Have you ever looked at your Profit & Loss statement, seen a profit, and wondered:

“If the business made money, where did all the cash go?”

You're not alone.

Profit and cash flow are not the same thing.

Your Profit & Loss statement measures income and expenses over a period of time. Your bank balance reflects the actual cash available at a particular moment. Several things can create a gap between the two.

Customers haven't paid you yet

You may have recorded a sale and earned a profit, but if the customer hasn't paid the invoice, that money isn't in your bank account yet.

You're paying down debt

Loan principal payments use cash, but the principal portion generally isn't shown as an expense on your Profit & Loss statement.

You purchased assets

Buying equipment, vehicles, or other long-term assets can significantly reduce cash even though the entire purchase may not appear as an immediate expense on your Profit & Loss.

Owners took money from the business

Owner draws or distributions reduce the cash available to the business but generally aren't operating expenses on the Profit & Loss statement.

Timing matters

Businesses often pay expenses before collecting the revenue associated with them. That's why looking only at profit can give you an incomplete picture. 

Along with your profit, keep an eye on:

• Your bank balances
• Outstanding customer invoices
• Bills coming due
• Loan balances
• Expected cash needs over the next several weeks.

A profitable business still needs healthy cash flow to operate comfortably.

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Under U.S. Treasury regulations, any tax advice in this communication is not intended or written to be used to avoid IRS penalties. Tzinberg & Associates provides this information for general guidance only. It does not constitute tax advice, accounting services, investment advice, or professional consulting. Consult a professional adviser before making decisions or taking action, as the information is provided "as is" without any warranties regarding its completeness, accuracy, or timeliness.