Your P&L Says You Made Money. So Why Isn't It in Your Bank Account?
Your trades business is busy. Revenue looks good. The crews are working. Jobs are getting done. Your P&L even says you made a profit. Then you open your bank account and think:
Where the heck is the cash?
If you've ever asked yourself that question, there may be absolutely nothing wrong with your P&L. The problem is much simpler:
Profit and cash aren't the same thing.
Revenue can show up before your customer actually pays you. Cash can also leave your business for equipment, debt payments, taxes, materials and other things that don't hit your P&L the way you might expect.
That is why a growing construction or trades company can look profitable on paper and still feel cash strapped.
My Weird CPA version is even simpler: Revenue isn't cash. Profit isn't cash. Only CASH = CASH.
When I Don't Know Where to Start, I Start With Cash
Several years ago, I was hired by a company after a major system implementation.
The accounting department had been through a lot. The books hadn't been fully reconciled in about 18 months, and my job was to help clean them up and establish processes so the company could trust its financial information again and eventually have access to it in real time.
So I started digging. And digging. And digging some more.
I couldn't find reconciliations for the accounts from the prior Controller, and pretty much every balance needed to be understood and validated. I'm not going to lie. At first, I was overwhelmed. There were about a million places I could have started. Then I remembered one of my simplest accounting rules:
Start with cash.
When the accounting gets messy, cash is where I go looking for the truth first. Why? Because eventually, almost everything your business does affects cash.
Cash comes in:
Your customers pay you.
You borrow money.
You receive interest.
Cash goes out:
You pay your people.
Buy materials.
Put fuel in trucks.
Pay insurance.
Buy equipment.
Make debt payments.
Pay interest.
Pay taxes.
Cash is where the rubber meets the road. It's what actually made it into your bank account and what actually left.
Think of Your Bank Account Like a Sink
Picture your business bank account as a big sink. At the top is the faucet. That's the cash actually coming into your business from customers. And I mean actually coming in.
You can send a customer a $100,000 invoice and record $100,000 of revenue. That's great.
But if the customer hasn't paid you yet, you don't have $100,000 of cash.
You have a receivable. You don't have cash.
Try using that to make payroll Friday. 😂
Then there's the drain. Money is constantly flowing out to support the work you're doing:
Payroll and labor
Materials
Subcontractors
Fuel
Trucks and equipment
Insurance
Rent and overhead
Software
Taxes
Debt payments and interest
And then there's sometimes a whole bunch of "other" going down the drain. These are the costs that don't get your attention until you receive a financial statement a month later and realize they added up to a whole lot more than you thought. By then, the cash is already gone.
This is why I focus on cash first. Because if plenty of water is coming through the faucet but the sink never seems to fill up, I want to know where it's going.
The goal is to understand what happened to your money so you can make a better decision about what happens next.
That's what your Financial BLUEPRINT should help you see: where your cash went yesterday so you can make better decisions today.
The Bottom Line
THE DHF IDEA
Revenue isn't cash. Profit isn't cash. Only CASH = CASH.
WHAT YOU NEED TO WATCH FOR
Don't just watch sales and profit. Watch the cash actually collected from customers and what leaves the bank for labor, materials, equipment, overhead, taxes, debt and everything else required to keep your trades business running.
THE HIDDEN OPPORTUNITY (BURIED TREASURE)
If you're making money on paper but aren't seeing it in the bank, don't automatically assume you need more sales. First, understand what's already filling and draining your sink.
THE QUESTION YOU MUST ASK YOURSELF RIGHT NOW
If my P&L says I'm making money, can I explain why that money isn't showing up in my bank account?
The Hound's Take
I'm a Weird CPA because I love to dig into data that makes most accountants crazy. I want to know WHY the data isn't right instead of fixing the same problem over and over.
When I'm staring at a financial mess and don't know where to start, I don't start by building another report.
I start with cash.
Figure out what's coming in. Figure out what's going out. Then start digging into why. Once you understand that, the rest of the financial picture gets a whole lot easier to see.
Cash is where the rubber meets the road.
Until next time...keep digging until the numbers make sense.
Kathy
Meet the Lead Hound
Howdy Y'all! I'm Kathy (aka Shepherd), founder of Data Hounds Finance. I am a CPA by trade, an engineer at heart, and happiest with dirt under my fingernails.
I'm a wife to an amazing husband who is also a trades business owner, a Jesus follower, and the proud caretaker of an ever-growing collection of cats, dogs, chickens, turkeys...and whatever else decides to wander onto our little farm.
For almost 30 years I've helped businesses untangle financial messes by doing one simple thing: fixing the system instead of fixing the same problem over and over.
Life's too short to spend it manually updating spreadsheets or redoing work a computer can finish in five seconds. I'd rather put technology to work so people can spend their time thinking, creating, serving customers, and building better businesses.
Whether I'm pulling weeds in the garden or weeds out of an accounting system, I'm usually asking the same question:
How can we fix this once, and fix it right?
