Your P&L Does Not Equal Your Cash Flow
One of the biggest misunderstandings I see among small business owners — especially in the wellness industry — is assuming that your profit and loss statement (P&L) tells the full story of your cash.
It doesn’t.
Your P&L is a powerful tool, but it only shows part of your financial picture. It tracks income and expenses — what you’ve earned and what you’ve spent — but it doesn’t show where your cash is actually going.
And when you’re trying to understand why your bank account balance doesn’t match your “profit,” this is exactly where the confusion begins.
What Your P&L Does Show
Your P&L reflects your business performance over a period of time. It captures things like:
Client payments or class revenue
Payroll and contract labor
Rent and utilities
Supplies and subscriptions
It helps you understand whether your business is profitable on paper — but it doesn’t always explain your cash flow.
What Your P&L Doesn’t Show
Some of the biggest cash outflows in your business never appear on your P&L at all. These include:
Fixed asset purchases – things like equipment, furniture, or build-outs are posted to your balance sheet, not your P&L.
Debt principal payments – the loan payment itself doesn’t count as an expense, only the interest does.
Owner draws or distributions – money you take out personally isn’t a business expense.
Credit card or loan payoffs – these reduce liabilities, not expenses.
All of these can significantly impact your cash flow — even if they don’t show up as “expenses.”
Why This Matters
When you look only at your P&L, you might think, “I made $10,000 in profit this month — so where did all my cash go?”
The answer often lives on your balance sheet. That’s where asset purchases, debt payments, and distributions are tracked. If you’re not looking at both reports together, you’re missing key pieces of your financial story.
How to See the Full Picture
To truly understand where your money is going each month:
Review your balance sheet alongside your P&L. Look for loan paydowns, asset purchases, or owner distributions that affected cash.
Use your statement of cash flows if your accounting software provides it — it breaks down exactly how money moved in and out of your business.
Work with your bookkeeper or CPA to identify trends and create a cash flow forecast.
Cash flow and profit are connected — but they’re not the same thing. Understanding the difference helps you make smarter, more grounded financial decisions.
In short: Your P&L tells you how your business is performing. Your balance sheet tells you where your money actually went. You need both to understand the true story of your finances.
