Well, it can, and often does. Sometimes for the right reasons, and sometimes for the wrong reasons. I don’t want it to ever surprise you, but I definitely don’t want it to surprise you all at once at the end of the year when you may have some annual bills to pay (can anyone say “Taxes”?)
Being 100% clear that profit and cash are not the same thing, is one of your top priorities as a business owner – and when cash is tight, it is the highest priority.
Let’s break this down:
Most business owners that have moved past the receipts in a shoe box looking somewhat regularly at a monthly or quarterly Profit and Loss Statement.
Some business owners even look at their Balance Sheets as well (even though there is rarely a good set of information about what it all means).
But – very few businesses get the most important report of all: The Cash Flow Statement.
This statement holds the keys to the kingdom. It is a report that can have a bottom line that’s going in exactly the opposite direction of your profits! And, fortunately or unfortunately, it also represents a very key resource: your bank balance.
So how can profits be going up and up every month, but cash balances go down, down, down?
Let’s take it in steps:
First of all – the only way to know if you even have this issue is to be sure you get the Cash Flow Statement every month and know what it means: It means “This is your bank account balance and what is happening to it.”
It tells you about every single dollar coming into or leaving your bank account.
When you take a look at it for the first time, you’ll see that…
…profit is only one of the things that moves that needle.