Cash Flow: Bank Statements, Balance Sheets, and P&L, Oh My!

Unless you are an accountant who started her own firm, you likely don’t have an accounting background as a small business owner. And what started as a simple, good idea and an “easy” way to make a living, suddenly became a reporting nightmare with terms that don’t make sense, and that you, frankly, don’t care about. You just want to know the bottom line. Is your business doing well?

Part of the problem is all the new lingo that you have to learn. And just when you think you have a handle on the new terms, your accountant tries to explain that money in the bank doesn’t mean money that is available to use, or that increasing accounts receivables might, counterintuitively, mean less cash flow rather than more. And somehow, the amount left in the bank account at the end of the month doesn’t necessarily equal net profit. Or was it gross profit?

Sometimes it feels like you and your accountant aren’t even speaking the same language. And in a way, you’re not.

Many small business owners view their monthly bank statements and reconciliation process like this:

And that cash left over at the end of the month is money the owner can use at her discretion.

It can be confusing to learn why that cash “left over” at the end of the month might already be allocated. It can also be confusing to find that the profit for the month might not equal the cash flow for the month nor the amount of cash left in the bank account.

And that’s okay. In the next two posts, we’re going to cover the Cash Flow Drivers, how they affect your bottom line and their relationship to your business’s profit. Rome wasn’t built in a day, doctors don’t become doctors overnight, and no one starts out as a business expert. That’s why it’s important to have a reliable accountant and trusted advisors with the experience and know-how on your team to help coach you. It’s why we launched our business advisory service - to bridge the gap between numbers and context, and to help clients unlock their true potential for success. Contact us for a free business assessment and to see how we can help you.