Great Profit But Can't Pay the Bills - A Bookkeepers POV

It's shocking to learn that your business appears profitable but it is actually broke. How is that possible, you ask? Because profitability and cash flow are not the same. Your profit and loss report is purely for tax time. It does not show the full picture of your business because you might be an accrual based business or you have loans, owner pay, or inventory which is captured on your balance sheet.

It is crazy that you can show a profit on your income statement and still not have money in the bank. Budgeting helps you track when money is actually received, not just earned, so that you will know what your cash flow and burn rate will be. Without budgeting, you might overestimate your ability to reinvest or cover expenses. You might be thrown off because your sales seem so great yet your bank accounts are not so great.

A few best practices that I recommend:

*Budget weekly,
*use the EPI™ formula (Expenses + Profit = Income),
*know what is in the pipeline to be paid (not sold).

Profit is important but cash flow is what keeps your doors open. And cash flow only flows when you actually have cash!!!

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