Your bank balance doesn’t always equal your profit - here’s why:

Your bank balance is not your profit. In fact, sometimes, it’s not even close!

You still have bills to pay. So, your bank balance will come down.

But then, some people will pay you. So, you bank balance will go up again.

It can change every day. And often it does.

That’s why profit is measured over a particular period of time.

A month, a quarter, or a year. Not daily.

Sales less expenses equals profit.

That’s how we work it out. Not how much is sitting in the bank.

If people owe you money, that’s counted in sales. If you owe people money, that’s counted in expenses.

Sales less expenses equals profit.

The bank balance is separate.

When people pay you, that’s money in (it’s already been counted in sales).

When you pay people, that’s money out (it’s already been counted in expenses).

That’s what makes your bank balance change.

But your bank balance doesn’t tell you how much people owe you.

Or how much you owe other people. Or the tax office. Or super. It simply tells you how much is in the bank.

At that moment.

You need to look at your Profit and Loss Statement to see if you’ve made a profit.

Then check your Accounts Receivable to see how much people owe you.

Then check your Accounts Payable to be sure you can pay them.

A cashflow forecast can help.

Let me know if you need a hand.

Peter