💸 Why Does My Business Show a Profit but There’s No Money in the Bank?

One of the most common frustrations for small business owners is this:
Your Profit & Loss report (P&L) shows a profit, but your bank account says otherwise. So… where’s the money?

In this article, we’ll break down why your business can look profitable on paper, yet still feel broke — especially if you’re using cash basis accounting.

🧠 Understanding the Difference Between Profit and Cash Flow

Your P&L statement tells you whether your business made a profit during a period, but it doesn’t always match the actual cash in your bank account.

Many business owners assume “profit = cash,” but here’s why that’s not always true.

🔍 Reasons Why Profit Doesn’t Always Show Up in Your Bank Account

1. Large Purchases (Assets, Not Expenses)

Let’s say your business buys a truck for $40,000.
In cash accounting, that $40,000 comes straight out of your bank.
But in your P&L, it’s not a full expense — it’s recorded as an asset and depreciated over time.

➡️ Cash leaves the bank immediately, but the P&L still shows profit.

2. Loan Payments

If you’re paying off a business loan — say $5,000/month:

• Only the interest portion is a deductible expense.

• The principal reduces your bank balance but doesn’t touch your profit.

➡️ So the P&L says you’re profitable, but your cash is shrinking.

3. Owner Distributions

If the business distributed $10,000 to you or other owners:
That money doesn’t count as an expense, even though it came out of the bank account.

➡️ Bank goes down, but P&L remains unchanged.

4. Inventory or Prepaid Expenses

Let’s say you buy $20,000 worth of inventory:
If you haven’t sold it yet, it’s considered an asset, not an expense.

➡️ So again, bank balance drops, but P&L doesn’t show a loss until it’s sold or used.

📊 What This Means for Your Business

It’s easy to assume your business is doing well just by looking at the net income. But without reviewing cash flow and your balance sheet, you could find yourself in trouble — especially when it’s time to pay vendors, taxes, or even your own salary.

That’s when the question hits:
👉 “If I made $50,000 this year, why am I still broke?”

✅ Final Thoughts: Profit Is Not Cash

Your P&L tells you if your business is profitable.
Your cash flow tells you if you can survive.

If you’re only looking at your income statement, you’re missing half the picture.

As a small business accounting professional, I always recommend reviewing these three reports regularly:

• Profit & Loss Statement

• Cash Flow Statement

• Balance Sheet

📈 Need Help Understanding Your Business Numbers?

At PB Accounting, we help business owners like you decode the numbers, manage cash flow, and make smarter financial decisions — without the confusion.

👉 Book a free consultation and let’s talk about how we can help you feel your profits in your bank account, not just on paper.