Let’s be real: accounting isn’t usually at the top of the “fun things” list for most small business owners. But stick with me… I promise this conversation could change the way you look at your business (and maybe even help you sleep better at night).
At Norman Professional Services, we’ve sat across from countless owners like you: smart, driven, and working their tails off. And along the way, many get blindsided by one simple thing: not understanding both cash and accrual accounting. They think cash is king (which it is… sometimes), but they’re missing half the story.
And you deserve the whole story.
Two Lenses, One Picture
Cash accounting is like checking the balance in your wallet. How much money do you have today? When a client pays you, it’s income. When you pay a vendor, it’s an expense. Simple, immediate, and crucial – especially for tax filing and day-to-day cash flow.
Accrual accounting, though, shows you something even more powerful: when you earned the money and when you actually owe expenses, regardless of when the cash moves. It’s how you can tell whether your business is truly profitable, not just lucky enough to have a few deposits clear before the bills pile up.
Here’s the real kicker:
Most small businesses need both views. Cash accounting helps you survive today. Accrual accounting helps you build a sustainable, growing business.
Why It Matters More Than You Think
Ever stared at a “profitable” income statement and then stared at your empty bank account and thought:
“What the heck is going on here?”
That’s accrual profit talking. It’s based on invoices sent and bills logged, not dollars in your account. Understanding both cash and accrual views can prevent you from freaking out unnecessarily… or worse, celebrating a phantom success.
Without both, you can’t answer critical questions like:
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Are you pricing your services profitably?
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Are you collecting payments fast enough?
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Are you spending money on growth or just plugging holes?
Watch Out for These Pitfalls
Most owners have been advised by their CPAs to think in cash terms because that’s how taxes are filed. Cash basis for taxes makes sense a lot of the time. But relying solely on it to run your business? That’s like trying to drive a car with only a speedometer and no gas gauge.
You need the full dashboard.
Also: cash accounting can hide a collections problem or mask a profitability issue. Accrual reporting reveals both.
Real Business, Real Stories
I want to give a couple examples, with names redacted for privacy.
I once met with a client, let’s call him Barry, an electrical contractor who thought his sales team had dropped the ball. “Last month was our worst month!” he would sometimes agonize. A quick switch in QuickBooks from cash to accrual reports showed the truth: it wasn’t sales. It was collections. Barry wasn’t getting paid fast enough.
Another one, let’s call her Lauren, felt the weight of payroll looming over her each month. We helped her pinpoint the real breakeven point for her business and build cash reserves, not just for payroll, but for other need-to-have spend areas for other aspects of the business, so she could sleep better at night and be present with her family.
The monsters under your bed get smaller when you shine some financial light on them.
How to Start Seeing the Full Picture
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Look at your reports in both cash and accrual modes. In QuickBooks, it’s just a simple toggle at the top of the report.
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Learn the language. If terms like “matching principle” and “realized vs. recognized revenue” sound foreign, it’s time for Accounting Vocabulary 101. We can help.
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Forecast and plan. Knowing your cash flow future is as important as knowing today’s balance.
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Ask better questions. When you understand both accounting methods, you can ask powerful questions that lead to better decisions and bigger profits.
Final Thought:
Small business owners are some of the hardest-working, smartest, most passionate people I know. But passion alone doesn’t pay the bills. Mastering both cash and accrual views gives you control. Power. Peace of mind.
If you’re ready to finally understand your numbers, and use them to create a thriving business and a richer life, then let’s talk.
🔗 Schedule a free call with us today. Let’s take a close-up and panoramic view of your financial future.
