Why Your P&L Is Lying to You — And What to Do About It

Ever looked at your P&L and felt happy at the growing profit figures, with this feeling fast fading or turning to despair when you catch sight of your bank balance? 

That’s because cash and profit are different and the truth of the fact is you need to look at both to really have a grip on your business.  

Here’s why that happens. 

Your P&L won’t show things like loan repayments, VAT owed or capital purchases. So, whilst it does show a profit that profit from a cash perspective may already be committed.  

Likewise, if you take money out for personal use, it won’t show in your P&L but it absolutely will affect the cash balance.  

And of course, not all P&L’s show a provision for corporation tax, and so if you’re not forecasting for this elsewhere, it can come as a surprise and wipe out the profit.  

It is very easy to get caught out. 

So, what can you do about it? 

Take a more holistic approach. 

Monthly management reports ideally will include: 

• The P&L 

• A Cash Flow forecast 

• Tax estimate  

• Profit v cash comparison 

• The Balance Sheet 

This way you are taking an overall approach and getting a real-time feel for things, meaning you can truly take control of your business finances. 

A lot of modern software can help you with this or even dare I say a spreadsheet can help you bridge the gap between your P&L and cash flow. 

Want help? Book a discovery call and we’ll show you how we help growing businesses fix this.