You’re Making a Profit… So Why Is There No Money in the Bank?

Let’s talk about the three financial statements every business owner needs to understand. Not just your accountant. Not just your bookkeeper. You.

If you’ve ever asked yourself,
“I’m showing a profit. So why does my bank balance feel anemic?”
This post is for you.

The Income Statement: Are You Making Money?

Your income statement, also called a profit and loss statement or P&L, answers one very important question:

Does my business produce a profit?

It starts with revenue. This is the money you earn from clients and customers.

From there, we subtract direct costs. These are the costs you must incur to generate revenue.
In a service business, this is usually labor.
In a product business, it is raw materials.

Revenue minus direct costs gets you to gross profit.

Next, we subtract indirect costs, often called overhead. Think rent, insurance, sales expenses, software, and professional fees.

What’s left is your net profit.

Revenue minus direct costs minus indirect costs equals net profit.

That’s the income statement in a nutshell. It tells you whether your business is profitable.

But profit alone does not tell the whole story.

The Balance Sheet: How Wealthy Is Your Business?

This is where many business owners check out. Big mistake.

The balance sheet is your wealth statement. It answers a different but equally important question:

How wealthy is my business right now?

The balance sheet is built on a simple equation:

Assets minus liabilities equals equity.

Your assets include your cash, the money people owe you, and your stuff like equipment.

Your liabilities are all the promises you’ve made to pay other people cash. Vendors, lenders, credit cards, and loans.

When you take everything you own and subtract everything you owe, what remains is equity.

Equity is your business wealth.

This statement tells you whether your business is getting stronger or weaker over time.

The Statement of Cash Flows: Where Did the Money Go?

This is the statement that answers one of the most common questions I hear:

“If I’m profitable, why isn’t there any money in the bank?”

Cash moves in and out of your business in three ways.

First is operations. This is the day to day activity you see on the income statement. Money coming in from customers and money going out to pay expenses.

Second is investing. This includes owners putting money into the business or taking distributions out. These transactions affect equity on the balance sheet.

Third is financing. This includes lines of credit and loans. When you draw on a line of credit, cash comes in. When you pay it down, cash goes out.

Here’s the key insight.

Investing and financing activity affects cash but does not show up on the income statement.

That is why you can show a healthy profit and still feel broke.

Why You Need All Three Statements

Each financial statement answers a different question:

The income statement asks,
Am I profitable?

The balance sheet asks,
How wealthy is my business?

The statement of cash flows asks,
Where is the money actually going?

If you only look at one, you are flying blind.

Your business is trying to tell you its story through the numbers. When you know how to read all three statements together, you gain clarity, confidence, and control.

And yes, you sleep better at night.

If you want help turning these reports from confusing paperwork into powerful decision making tools, that’s exactly the work I do as a fractional CFO.

Your numbers already have the answers.
You just need to know where to look.