learnfinancewith← All coursesLeer en español →
Small-Business Books · session 4 of 6 · 30 min
Profit Is Not the Bank Balance
- Tell profit (earned minus spent) from cash (what is in the account today).
- Spot the two traps: profitable but cash-starved, and cash-rich but losing money.
The bank balance answers one question: what do I have today? Profit answers a different one: did the work earn more than it cost? A business needs both answers, and the balance cannot give the second — because money arrives late, leaves early, and sometimes belongs to work not done yet.
| Reading | Caterer | Subscription seller |
|---|---|---|
| Bank balance today | Ⓛ90.00 | Ⓛ4,800.00 |
| Owed by clients | Ⓛ2,100.00 | Ⓛ0.00 |
| Owed TO customers (work not yet done) | Ⓛ0.00 | Ⓛ4,400.00 |
| This month: earned minus spent | Ⓛ600.00 | −Ⓛ200.00 |
The caterer is profitable and nearly out of cash — three weddings unpaid. The seller sits on Ⓛ4,800.00 of customers' prepaid money while losing Ⓛ200.00 a month. Each balance, read alone, tells the exact opposite of the truth.
The caterer's clients pay their Ⓛ2,100.00 next week, and Ⓛ700.00 of supplier bills come due. Starting from Ⓛ90.00, what is the balance after both?
Work it out, then check
Ⓛ90.00 plus Ⓛ2,100.00 minus Ⓛ700.00 is Ⓛ1,490.00. Nothing about the business changed — the profit was already earned. Only the cash caught up with the truth.
This week
Answer both questions for your own business, separately: what do I have today, and did last month earn more than it cost? If you can only answer the first, the ledger and the owed lists are what unlock the second.
Next in Small-Business Books: A Month-End Habit →