Your Bank Balance is Not Your Profit

I understand why people do this.

You open your bank account.

There is money in it.

Excellent. The business is doing great.

Except...maybe.

Your bank balance is basically the business equivalent of looking in your refrigerator and deciding you have plenty of food because there are seventeen containers in there.

Some of those containers are leftovers.

One belongs to your kid (not even sure it's food tbh).

Three are giant tubs of sour cream (don't ask)

And something in the back has been there since you moved in....three years ago.

The amount of stuff in the refrigerator doesn't actually tell you whether you have anything to make for dinner.

Your bank balance is the same way.

There may be $18,000 sitting in your checking account.

Cool.

Except $4,000 is for payroll.

$2,000 is sales tax you collected and will eventually have to hand over to the state (sorry, Jeff).

The credit card bill is due next week.

You have three outstanding bills.

And Karen keeps insisting that the massage chair, two-person sauna, and espresso machine that she bought for the office is definitely an expense and absolutely vital to team productivity.

Cash in the bank is not the same thing as profit.

Your bank balance tells you how much cash you have right now. Your Profit & Loss tells you whether the busienss is actually making money over time.

You need both pieces of information.

Because $18,000 in the bank can belong to a healthy, profitable business.

It can also belong to a business that is about to spend $18,000.

The refrigerator is full.

But do we have enough to make a meal?