L. Barger Bookkeeping

Compare last month’s profit with last month’s cash flow, then name one reason for the gap.

Your calendar is full. Your clients are happy. You turned down work last month because you were too booked. And somehow, when you open your bank account, your stomach still drops a little.

If that’s you, you are not doing anything wrong. But there’s something going on, and today we’re going to figure out what.

Welcome to The Business Break, presented by L. Barger Bookkeeping. I’m Lindsey Barger, and this is your weekly 15 minutes to step out of the busy, get a little clearer on your business, and walk away with one thing you can fix this week. Today we’re talking about the difference between profit and cash flow, and why mixing them up is one of the most common reasons good businesses feel broke. Let’s take a break.

Let me tell you about a business owner. We’ll call her Dana. Dana runs a mobile dog grooming business. She’s got a van, a loyal client list, and she’s booked out three weeks in advance. On paper, last month was her best month ever. She brought in $9,000 in services.

But when Dana went to pay her van loan and restock supplies, she had about $600 in the bank. And she spent the whole weekend wondering where the money went and whether she was actually any good at this.

Here’s the thing. Dana is good at this. Her business is probably profitable. Her problem isn’t profit. Her problem is cash flow. And those are two very different things.

Point 1: Profit and cash flow are not the same thing.

Let’s define these in plain English.

Profit is what’s left after you subtract your expenses from your income over a period of time. It’s what shows up on your Profit and Loss statement, your P&L. It answers the question: Did my business make money this month?

Cash flow is the actual movement of money in and out of your bank account, and when it happens. It answers a different question: Do I have money available right now to pay my bills?

You can be profitable and still run out of cash. And you can have cash in the bank and still not be profitable. A lot of owners only look at one, usually the bank balance, and make every decision from there. That’s like driving by only looking at the gas gauge and never the speedometer.

Point 2: The four common cash gaps.

When I sit down with a business that’s profitable but cash-tight, the gap almost always comes from one of four places. As I walk through these, I want you to quietly keep score: which one sounds like you? It might be more than one. For a lot of owners, it’s all four.

One: slow-paying clients.

You did the work in October, but they paid in December. Your P&L may count that income in October, but your bank account doesn’t see it until it actually arrives. In the meantime, you’ve already paid for the gas, the supplies, and your own time to do that job. So you’re basically giving your client a free loan.

This one sneaks up on service businesses because it rarely feels like a big deal in the moment. One client says, “Can I pay you next week?” Another one is on vacation. A commercial client has a 30-day payment policy you didn’t know about until after the job was done. None of those feels like a crisis. But stack up five or six of them, and suddenly you’ve got a couple thousand dollars that’s yours, sitting in someone else’s account.

And sometimes the doesn’t come from the client. It’s us. If you finish a job on Tuesday and don’t send the invoice until you sit down to do paperwork two weeks later, you just added two weeks to the wait before your client even knows they owe you.

Here’s how to tell if this is you: pull up your list of unpaid invoices or Accounts Recievable. If you don’t have one, honestly, that’s your first clue. If you do, add them up. That total is cash you’ve earned but can’t use yet.

The fixes are simple, but they take consistency. Invoice the same day you finish the work, or at least the same week. Put your payment terms on every invoice, like “due on receipt” or “due in 7 days.” Make it easy to pay with a card or a payment link. And pick one day a week to follow up on anything past due. A friendly reminder is not rude. It’s business.

For Dana, she had about $1,100 in appointments from regular clients who “settle up at the end of the month.” That’s $1,100 she’d earned but couldn’t use to pay her van loan.

Two: big one-time purchases.

New equipment, a new mower, a deposit on a van, a new laptop, a website. These come out of your cash all at once, even though they help your business for months or years.

Here’s where it gets confusing. Depending on how your books are set up, a big purchase might not show up as one big expense on your P&L. It might be recorded as an asset and spread out over time. So your profit looks fine that month, but your bank account just took a $3,000 hit. Both things are true. They’re just measuring different things.

Even when it does show up as an expense, the real problem is timing. Most service businesses have income that comes in as a steady trickle, and big purchases that go out in one lump. When that lump lands in a slow month, or right before another big bill, it hurts.

Listen, I’m not telling you not to buy equipment. Good tools make you faster, safer, and more professional. The question is whether you planned for it. Keep a short list of the equipment you know you’ll need to replace in the next year, and roughly what it’ll cost. Set aside a little each month toward it, even $50 or $100, so the purchase comes out of savings instead of the money you need to run the business. And if you’re thinking about financing something, look at that monthly payment against your slowest month, not your best one.

Dana bought a new grooming table and a dryer last month. Both were good purchases. Her old dryer was on its last leg. But that was $1,400 that left her account in one week, and she hadn’t set anything aside for it.

Three: owner draws.

When you pay yourself (and you should!) that money leaves the business. But for most small businesses, like sole proprietors and single-member LLCs, owner draws don’t show up as an expense on your P&L. They’re not a cost of running the business. They’re you taking your share of the profit.

That’s exactly why this gap is so sneaky. Your P&L says you made $4,000 in profit. Your bank balance went down. And the difference is sitting in your personal checking account, because you moved it over a little at a time all month. A hundred here for groceries, three hundred there for the car payment.

The issue usually isn’t that owners pay themselves too much. Honestly, most of the owners I talk to pay themselves too little. The issue is that it’s random. When you pull money out whenever you need it, you never really know what the business can afford, and you never know what you can count on at home, either.

The fix is to give yourself a paycheck. Pick an amount you can sustain, even if it’s small to start, and pay yourself on a schedule, like every two weeks or the 1st and the 15th. Then, if the business has a great quarter, give yourself a bonus on purpose. Now your pay is predictable, and you can plan around it on both sides.

Quick note: if your business is set up as an S-corp, this works a little differently, because you’re paid through payroll. That’s a conversation for you and your tax pro. But the principle is the same: pay yourself on purpose, not in a panic.

Dana had been pulling money out as she needed it. When she added it up, it was about $2,800 for the month. Totally reasonable for the work she did. She just had no idea it was that much.

Four: taxes you didn’t set aside.

This is the big one. When you work for yourself, nobody is taking taxes out of your paycheck. That’s your job now. And if you’re not putting money aside for estimated taxes as you go, the tax bill hits your cash like a truck.

What makes this one so painful is that the money feels available. It’s sitting right there in your account, so it feels like yours to spend. But part of every dollar you earn already belongs to the IRS, and maybe your state. You’re just holding onto it for a while.

The fix: open a separate savings account just for taxes. Every time you get paid, move a percentage into it. A lot of owners use a percent of their profit, but your number depends on your situation, so check with your tax professional. Then put the estimated tax due dates on your calendar. For most people, that’s mid-April, mid-June, mid-September, and mid-January. When a payment comes due, you just move the money over. No panic. No truck.

Dana’s third-quarter estimated payment was due in September. She paid it, about $1,700, but it came straight out of her business checking, because she didn’t have a tax savings account yet.

So let’s go back to Dana’s $9,000 month and her $600 balance. Add it up: $1,100 she hadn’t collected yet. $1,400 in new equipment. $2,800 she paid herself. $1,700 in taxes. That’s $7,000 of her $9,000 month, before she’d paid for a single bottle of shampoo or a tank of gas.

And notice, none of those mean her business is failing. Every one of them is money she’s owed, money she invested, money she paid herself, or money she owed the government. The profit was real. It just went somewhere, all in the same few weeks, and nobody showed her where.

Point 3: You need both views to make good decisions.

Here’s why this matters. If you only look at your bank balance, you might think you can’t afford to hire help, raise your own pay, or invest in something that would grow your business, when actually you can. You just need to time it right.

And if you only look at profit, you might spend money you don’t actually have yet.

The owners who feel calm about money look at both. They know roughly what they’re earning, and they know what’s coming in and going out over the next few weeks. That’s not complicated accounting. It’s just clear, current books and a few minutes of attention.

Real Talk

I want to pause here, because I know how this feels.

When money is tight, it’s really easy to take it personally. To think, “Maybe I’m bad at business. Maybe I’m charging too little. Maybe I should just quit.” I’ve heard all of those from owners who were, honestly, doing a great job.

Most of the time, the problem isn’t you. It’s visibility. You can’t manage what you can’t see. And when you’re the one doing the work, scheduling the clients, answering the calls and texts, and running the van, nobody is giving you a clear view of the numbers.

So if you’ve been feeling that low-grade money anxiety, I want you to hear this: the fix is usually not working harder. It’s seeing more clearly. That’s it.

One Thing to Fix This Week

Okay, here’s your one thing to fix this week.

I want you to compare last month’s profit to how much your bank balance actually changed last month.

Here’s how:

Pull up your P&L for last month in your bookkeeping software, and find your net profit at the bottom. If you don’t have a P&L, just total your income and subtract your business expenses.

Look at your business bank balance on the first day of last month and the last day of last month. What’s the difference?

Write both numbers down side by side. Then write down one reason for the gap. Was it an unpaid invoice? A big purchase? What you paid yourself? Taxes?

That’s it. You’re done when you have two numbers and one reason. It should take about 10 minutes, and I promise it will tell you more about your business than a month of worrying.

Recap

Quick recap: profit tells you if your business made money. Cash flow tells you if the money is there when you need it. You need both. And your one thing this week: compare last month’s profit to your bank balance change, and name one reason for the gap.

That’s your Business Break for this week. If something in this episode hit a little close to home, you’re not alone, and you don’t have to sort it out by yourself. You can find me at LBargerBooks.com or send me a message on LinkedIn. Let’s connect so you can Focus on what you love, I’ll take care of the rest.

Next week, we’re building the easiest money habit you’ll ever start: the 15-minute weekly money date. See you Monday.

This show is for general education, not tax or legal advice. Every business is different, so check with your tax professional about your specific situation.