Here’s a conversation I’ve had more times than I can count. An owner slides the P&L across the table and says: “It says we made money. So where is it?”
Revenue is vanity, profit is sanity, and cash is what pays your people on Friday.
Profit isn’t cash
Your P&L shows whether you earned more than you spent. It doesn’t show when money moved, and plenty of real cash never touches it.
Picture an excavation company doing $2 million a year with $240,000 of net profit. The bank balance is still down $60,000. Here’s where $300,000 went:
- $60,000 into receivables: two big general contractors who pay in 60 days, not 15.
- $90,000 into a new excavator: $40,000 down and $50,000 of loan principal, which never hits the P&L.
- $150,000 to the owner: draws, including money for the owner’s personal taxes.
Nothing went wrong. The business grew in a way that eats cash, and nobody was watching the right number.
Where cash disappears
- Growth: payroll and materials go out before customers pay.
- Slow collections: every late day, you’re financing your customer.
- Equipment and debt: principal and down payments aren’t expenses.
- Inventory: cash sitting on a shelf.
- Taxes: billed on profit, paid from whatever’s left.
- Owner draws: “we had a good year” on paper.
- Seasonality: a lot of New England businesses earn the year in eight months and pay bills for twelve.
Three numbers to watch every week
- Cash against a 13-week forecast. A crunch you spot six weeks out is a phone call. Spotted on Thursday, it’s a crisis.
- Receivables aging. If receivables grow faster than sales, you’re funding the growth yourself.
- Gross margin by job or product line. Some of your work is quietly paying for the rest.
The CFO take
Most owners I work with got to seven figures on instinct, grit and a tolerance for chaos that would make most accountants faint. Past a million, instinct needs instruments: somebody reading the gauges every week, not once a year in April.
If your P&L and your bank account tell two different stories, let’s talk.
The excavation company is an illustration, not a real client. General information, not financial or tax advice.
