Why Your P&L Shows a Profit, But Your Bank Account Is Empty

Key Takeaways

• Profit Does Not Equal Cash
• Your Balance Sheet Holds the Answers
• Loan Principal Payments Reduce Cash
• Owner Distributions Don’t Show as Expenses
• Inventory Spending Ties Up Cash
• Track Both Profitability & Cash Flow

Start with Liabilities: Where Cash Disappears

Your balance sheet tracks assets, liabilities, and equity—things that impact cash flow but don’t show up as expenses on your P&L. These are the biggest culprits when profit and cash don’t align:

1. Principal Payments on Loans

Loan payments are made up of two parts:

• Interest (this appears as an expense on your P&L).
• Principal (this does NOT appear on your P&L but still impacts cash flow).

Every time you pay down your loan principal, you’re reducing a liability—but you’re also reducing your cash balance.

The impact? If you’ve been aggressively paying off debt, that could explain why your bank account feels drained despite showing a profit.

2. Owner Distributions

Have you taken money out of your business for personal use? That money doesn’t count as an expense, so it won’t show up on your P&L.

Instead, owner draws, dividends, or distributions:

• Reduce your equity on the balance sheet.
• Directly impact your available cash.

The impact? If you’re paying yourself without tracking it as part of your cash flow planning, your bank balance might look a lot lower than expected.

3. Inventory Spending

Bridal shops operate differently than most businesses because inventory isn’t an expense—it’s an asset.

• When you buy new inventory, that cash moves to your balance sheet as an asset.
• Only when you sell the inventory does the cost of goods show up on your P&L.

The impact? If your stock  ties up that cash on the balance sheet without it reflecting as an expense. That money is sitting in your gowns, not your bank account.

Profit Does Not Equal Cash

If your P&L shows a profit, but your bank account says otherwise, don’t panic. Your balance sheet holds the answers.

• Loan principal payments reduce liabilities but also reduce cash.
• Owner distributions pull from your bank but don’t show as expenses.
• Inventory spending ties up cash in assets until those items are sold.

The solution? Track both profitability (P&L) and cash flow (balance sheet) together. This full-picture view helps you plan better, manage your finances wisely, and avoid cash flow surprises.

Next step: Take a look at your balance sheet today. Where’s your cash really going?
Need help? We can do a Profit Assessment for you to help you understand your true financial position!