Profit Is Not Cash: Give Your Business More Breathing Room

Last week, we talked about your P&L and the difference between being busy and being profitable.

This week, we are talking about the question that often comes next:

“Okay… so where did all the money go?”

If your P&L shows a profit but your bank account still feels tight, you are not doing business wrong.

You are learning the difference between profit and cash flow.

Profit and cash are different

Your P&L shows whether your business earned more than it spent over a period of time.

Cash flow shows what money actually came into and left your bank account.

Those two numbers do not always match.

Your business can be profitable on paper, while cash still feels low because:

• A client has not paid an invoice yet.

• You bought supplies, inventory, or equipment.

• You paid taxes, rent, insurance, software, or education costs.

• You made a credit-card or loan payment.

• You paid yourself.

• You paid contractors, commissions, or deposits for upcoming work.

Profit measures income after expenses, while cash flow tracks the real movement of money into and out of your business. The timing of invoices, payments, debt, taxes, and purchases can create a gap between the two.

A quick example

Let’s say a vocal coach brings in $6,000 from lessons, workshops, and private sessions, with $4,000 in business expenses.

Their P&L shows a $2,000 profit.

But that month, they also pay $600 toward a loan, take $1,000 in owner pay, send $500 for estimated taxes, and are still waiting on an $800 invoice.

That is how a profitable month can still leave the bank account feeling much lower than expected.

The same can happen in wellness and beauty businesses when product purchases, commissions, inventory, rent, late cancellations, and upcoming bills all hit at once.

Do a 30-day cash check

You do not need a complicated spreadsheet to get started.

Once a week—or at least once a month—look ahead 30 days.

Start with your current bank balance, then list:

• Money you expect to receive from clients, packages, invoices, bookings, products, lessons, gigs, or projects.

• Invoices that are still unpaid.

• Rent, booth rent, studio rent, utilities, insurance, software, and supplies.

• Contractor payments, commissions, payroll, credit cards, loans, and taxes.

• Owner pay and any planned purchases or events.

This simple check helps you see potential cash gaps early enough to make calmer decisions. Cash forecasting is designed to help businesses anticipate incoming and outgoing cash rather than reacting once the account is already low.

Create more breathing room

When cash feels tight, start with information—not panic.

You may be able to follow up on invoices, require deposits, delay a nonessential purchase, pause an unused subscription, revisit a discount, or adjust payment terms.

Over time, work toward a small cash reserve for essential business costs. That reserve can help you handle a late payment, slow season, cancellation, equipment repair, or unexpected expense without immediately taking work that drains you.

This is the financial version of the white space we talked about in August.

It is room to breathe.

Your small challenge

This week, make two lists:

• Every payment you expect to receive in the next 30 days.

• Every payment your business needs to make in the next 30 days.

Then ask:

“Where might I need more information, a better plan, or more breathing room?”

Next week, we will close the series by looking at your Balance Sheet—what your business owns, what it owes, and what you are building over time.

Keep IT Sunny~

Are You Making Money?

Photo by John Guccione www.advergroup.com: https://www.pexels.com/photo/100-us-dollar-banknotes-3483098/

When I am helping clients who are new business owners the end goal of financial reporting can be just to file their taxes. What may happen as their business grows is the need for a capital loan to make an investment in their business and then all of a sudden they will need more information at the request of the bank or another third party. I like to empower my clients to understand what is going on inside of their business whether they need funding or are ready to hire a new team member. One of the most important things to know as a business owner is that you are making money. The Profit & Loss can give you that information. 

The Profit & Loss answers the questions:

• What did I sell?

• What did I spend?

• What is left after that?

What Did I Sell?

If you take a look at your Profit & Loss you will see that it is organized to show your sales categories at the top portion of the report. Each category is like a sales bucket symbolizing how you generate revenue for your business. It enables you to compare your sales buckets to see what sold well this month vs. last month or another period. In this way, you can make adjustments to categories that aren’t doing so well and dig deeper into those categories that are selling like hotcakes! The result is your total income amount. 

What Did I Spend?

This section is broken into Cost of Goods Sold/Cost of Services vs. Expenses. Cost of Goods Sold/Cost of Services which are the direct inputs needed to generate revenue. If you offer services and not a physical product then you would look at things like subcontracted labor or a direct third-party vendor you use to deliver a particular service for one of your sales categories. The total Cost of Goods Sold is subtracted from total income to arrive at your gross profit. 

The second part of the “What Did I Sell” section deals with operational expenses. You are going to see things like advertising, bank fees, office supplies, insurance, etc. These are the outputs that are needed to run your business regularly. The key number to look at here is the total expenses amount. The result of this section is that it can help you to see what expense categories are providing a real benefit to your business vs. those you might want to change to get a greater benefit or save money.

Just remember that it usually costs money to make money and that your viewpoint about business expenses should include looking at what is an investment into your business vs. a commodity that can easily be substituted for something else. It’s like going to the grocery store to buy cereal. Some people must buy the name brand of certain types of cereal and others are fine with the store brand. It just depends on what you feel brings the most value to you. 

What Is Left Over?

The bottom half of the Profit & Loss answers the question most if not all business owners want to know which is did I make any money? The bottom-line number is what we all work for right? :) It is good to start with a goal in mind before you start analyzing this number or else it’s just a number without context. If you have generated more sales than expenses then you will have a net profit if you have generated more expenses than sales then you have a net loss as your bottom line number. 

Financial reports help to shape the story of your business. One of the most important questions that all business owners want answers to is are they making any money? The Profit & Loss answers this question by breaking down the report into three sections arriving at the bottom line number which tells you if your business is making any money. It is more helpful to have goals and metrics to analyze your numbers against to spot trends and to make sure you are successfully hitting your business's financial goals.

Keep IT Sunny~