Episode 45: Where Did the Money Go? Why Profit and Cash Aren't the Same Thing

Your QuickBooks Profit & Loss report says your business made money. So why doesn't your bank account agree?

It's one of the most frustrating questions small business owners face. Your business looks profitable on paper, but you're still worrying about payroll, upcoming bills, or whether there's enough money to cover next month's expenses.

The problem may not be your profitability. It may be your cash flow.

In this episode of QuickBooks Mastery for Small Business Success, Erica Northrup and Lee Davis explain the difference between profit and cash flow, where your money actually goes, and which QuickBooks reports can help you find the answers.

Plus, we're sharing a free Profit vs. Cash Flow Worksheet to help you follow the money in your own business.

Download the Free Profit vs. Cash Flow Worksheet

Why Profit and Cash Flow Aren't the Same Thing

A profitable business can still experience a serious cash shortage.

That's because your Profit & Loss statement measures income and expenses over a period of time, while your bank balance shows the cash available at a particular moment.

Lee explains how several common business activities create differences between these numbers:

• Customers who have been invoiced but haven't paid
• Equipment purchases recorded as business assets
• Loan principal repayments
• Owner draws and distributions
• Inventory purchases that tie up working capital
• Noncash expenses such as depreciation

You'll also learn how cash-basis and accrual-basis accounting affect your QuickBooks reports—and why switching your Profit & Loss report to cash basis doesn't necessarily explain every dollar moving through your bank account.

A Practical Example: $20,000 Profit, but Only $5,000 in the Bank

Erica and Lee walk through a fictional business, The New Tech Company, to demonstrate exactly how this happens.

The business begins the month with $25,000 in cash and earns $100,000 in revenue. After recording $80,000 in expenses, it reports a $20,000 profit.

But here's what actually happens to the cash:

Cash ActivityAmount

Beginning cash balance

$25,000

Customer payments received

+$85,000

Cash operating expenses paid

-$78,000

Equipment purchased

-$10,000

Loan principal repaid

-$5,000

Owner equity draw

-$12,000

Ending cash balance

$5,000

The business also has $15,000 in unpaid customer invoices, and its reported expenses include $2,000 in noncash depreciation.

The takeaway: The $20,000 profit isn't necessarily wrong, and neither is the $5,000 bank balance. They're measuring different things.

Understanding the difference is how you move from wondering where the money went to making informed financial decisions.

Want to see how these numbers work in your own business?

Download the Episode 45 Profit vs. Cash Flow Worksheet

Our free Excel workbook includes a cash reconciliation calculator, a four-week cash forecast, Lee's example, and a practical 15-minute financial review.

What You'll Learn in This Episode

• Profit vs. cash flow: Why profitable businesses sometimes struggle to pay their bills.
• Cash vs. accrual accounting: How your QuickBooks reporting method affects the numbers you see.
• Accounts receivable: How slow invoicing and overdue customer payments create cash shortages.
• Inventory and business growth: Why getting busier can actually increase your need for cash.
• Accounts payable: How to anticipate upcoming bills and avoid unexpected cash shortfalls.
• Equipment, debt, and owner draws: Why significant cash payments don't always appear as expenses on your Profit & Loss.
• QuickBooks financial reports: How to use your Profit & Loss, comparative Balance Sheet, Statement of Cash Flows, and aging reports together.
• Weekly cash forecasting: How to anticipate cash shortages before they happen.

Episode Chapters & Timestamps

00:00 – Welcome to QuickBooks Mastery for Small Business Success

00:54 – Why Doesn't My QuickBooks Profit Match My Bank Balance?

01:43 – What's the Difference Between Profit, Cash, and Cash Flow?

03:55 – Cash vs. Accrual Accounting: Understanding Your Reports

06:33 – The $20,000 Profit Example: Following the Money

09:14 – Where Did the Cash Go? Common Reasons for the Difference

10:48 – Accounts Receivable: Getting Invoices Paid Faster

12:41 – Can Business Growth Actually Create Cash Flow Problems?

13:56 – Accounts Payable: Planning for Bills Before They're Due

15:25 – Equipment, Loan Payments, and Owner Draws Explained

18:41 – Which QuickBooks Reports Help Explain Your Cash Flow?

21:54 – How to Build a Simple Weekly Cash Flow Forecast

24:36 – Your 15-Minute QuickBooks Cash Flow Check

27:31 – Key Takeaways, Free Resources, and What's Coming Next

29:58 – Closing and Additional Resources

Your Action Step: The 15-Minute Cash Flow Check

You don't need to spend an entire day analyzing your finances to start understanding where your money went.

Set aside 15 minutes this week and complete these five steps:

1. Check your Profit & Loss. Select your last completed month, confirm the reporting dates and accounting basis, and write down your net profit or loss.
2. Compare your cash balances. Look at the total cash across the business accounts you're reviewing at the beginning and end of that same month.
3. Review your Statement of Cash Flows. Identify major cash movements that help explain the difference.
4. Investigate one important item. Look at overdue invoices, inventory, equipment purchases, loan repayments, or owner withdrawals.
5. Look ahead. Identify your next payroll, major bills, and expected customer payments.

If you still can't explain the difference, ask your bookkeeper or accountant:

"Can you walk me from the profit we reported to the change in our cash and show me the transactions that explain it?"

That one question can lead to a much clearer understanding of your business finances.

Free Resources & Helpful Links

Episode 45: Profit vs. Cash Flow Worksheet

Put Lee's advice into practice with our free Excel workbook.

The worksheet includes:

• A worked example showing how $20,000 in profit can leave only $5,000 in the bank
• A cash reconciliation calculator
• A four-week cash flow forecasting template
• A 15-minute financial review checklist

Download Your Free Profit vs. Cash Flow Worksheet

Free QuickBooks Clarity Scorecard

Not sure whether your QuickBooks numbers are accurate enough to make business decisions?

Start with our free QuickBooks Clarity Scorecard to identify areas that may need attention.

Visit: https://leedavisandcompany.com

Episode 44: Building a Business Budget You'll Actually Use

Learn how to create a practical business budget and compare your financial performance against your goals.

Download the Episode 44 Business Budget Planning Worksheet

Episode 41: Your Monthly QuickBooks Health Check

Revisit the monthly financial review process discussed in this episode to help identify bookkeeping problems before they become bigger issues.

QuickBooks Mastery Program Waitlist

Want to become more confident using QuickBooks to understand and manage your business?

Join the waitlist for our upcoming QuickBooks Mastery training program and be among the first to know when enrollment opens.

Visit: https://leedavisandcompany.com

Coming Next: Episode 46

Are You Actually Making Money? What Your Profit & Loss Should Be Telling You

Now that you understand why profit and cash aren't the same thing, we'll take a closer look at profitability itself.

What is your Profit & Loss statement really telling you about your business? How can you use it to identify what's working, what's costing too much, and where you should focus next?

About Lee Davis & Company

At Lee Davis & Company, we help small business owners simplify QuickBooks, understand their financial reports, and make more confident business decisions.

Through practical training, helpful resources, and the QuickBooks Mastery for Small Business Success podcast, our goal is to make business finances easier to understand and manage.

Website: https://leedavisandcompany.com

Listen to the Podcast: https://quickbooks-mastery.captivate.fm/listen

Have a QuickBooks question? Email [email protected]. Your question might be featured in an upcoming episode.

If this episode helped you understand the difference between profit and cash flow, follow the podcast and share it with another small business owner who has ever wondered, "Where did all the money go?"

Welcome to QuickBooks Mastery for Small Business Success.

I'm Erica Northrup.

And I'm Lee Davis.

I handle the tech, and he handles the numbers, and together,

as a father-daughter team, we bring decades of experience helping small

to medium-sized businesses thrive.

We know that as a business owner, your time is best spent mastering

your craft and growing your business, not getting lost in QuickBooks.

Managing finances can be confusing, and you don't have hours to waste

sorting through spreadsheets or fixing bookkeeping mistakes.

That's where we come in, helping you streamline QuickBooks so you

can focus on building your business.

Each week, we break it all down into simple, actionable steps

so you can focus on growing your business, not fixing your books.

Let's embark on this journey together

You open QuickBooks and it says your business made

$20,000 profit last month.

Then you open your bank account and you're wondering how you're

going to cover the next payroll.

So where did the money go?

Welcome back to QuickBooks Mastery for Small Business Success.

I'm Erica Northrup, and I'm here with my papa, Lee Davis, and this is

Where Did the Money Go?

Why Profit and Cash Aren't the Same Thing.

On our last episode, we talked about building a business

budget you'll actually use.

Today we're looking at a question that can come up even when the budget

and the profit and loss look good.

Why doesn't the cash in the bank match the profit?

We'll follow the money through one simple business example and show

you where to look in QuickBooks.

By the end, you'll have a practical way to investigate the gap in your own business.

So Papa, can a business really make money and still struggle to pay its bills?

Yes, Erica, that's certainly a great question.

Profit measures the income expense for a period.

Cash tells you what money is actually available.

Customer payments, equipment purchases, debt, and money taken

out by the owner can all make those two pictures very different.

That is so true.

So Papa, let's start with the basics.

If a business owner only understands one thing from this conversation,

how would you explain the difference between profit and cash?

The profit and loss reports income less expense for a period.

So if you're talking about a month- Or you're talking about six months.

It's based on the period that you're looking at.

The accounting basis affects when those amounts appear.

So in other words, thinking about the accounting basis, if you're on a cash

versus an accrual basis, and so we're gonna talk about those in a minute,

but whatever period you're talking about is a six-month period or a month,

that's gonna give you your net profit.

The bank balance is an amount at a particular moment.

Cash flow measures the money coming in and going out over a period.

Comparing one month's profit with the ending bank balance

skips the cash you started with.

So in other words, if you have a beginning cash balance in your bank account, it

doesn't take that into consideration when you're looking at the profit and loss.

Profit and loss simply measures money in, money out as far as the profit and loss.

And so normally, you wanna run your profit and loss statements on an accrual basis.

And on an accrual basis, a business can earn income before a customer pays.

It also uses cash to buy an asset, repay loan principal,

or make an owner withdrawal.

These movements do not all appear as operating expenses.

And y- so you need to start by really asking what happened in the business, then

look at how that activity affects profit, cash, assets, liabilities, or equity.

So true.

Okay, so before we get into the example, explain cash and accrual for us.

What is the difference, and how can that report setting change what the

owner thinks they're looking at, Papa?

So on an accrual basis, the profit and loss is income and expenses

appear when earned and incurred, meaning when you earn money out on

a job, if you're a, a contractor and you create that invoice, it will show

up on the profit and loss as income.

And even though you haven't been paid for it yet, on the accrual basis, it's going

to appear as income a- as well as expense.

If you have created a payable, an accounts payable, an expense,

a bill, then it is gonna show up as an expense for that period.

So In QuickBooks, invoices and bills are important records of that

activity even before payment is made.

On a cash basis, profit and loss generally reports income when

received and expenses when paid.

And so I would tell you that you…

normally you want to run your profit and loss on the accrual basis because

that will tie out to your balance sheet.

But if you're also wanting to get a, a better cash picture, you can

run it on what actually the cash came in and what you paid out.

So on the cash basis, you can get a different picture

than on the accrual basis.

A cash basis profit and loss still does not include every

movement through the bank.

Loan principal, equity withdrawals, and asset purchases

can still explain balances.

So just because you run a, a cash basis profit and loss doesn't mean

it's gonna give you the whole picture.

So just understanding that in many ways, the cash flow report gives

you a much better picture of money moving through your business.

So good, Papa.

You know your stuff, and I love that.

This has been awesome for our listeners.

Okay, so when I'm comparing reports, I need to know both the

dates and the accounting basis.

Otherwise, I may be trying to compare two different views of the business.

That seems like what it would be, Papa.

Yes, of course, and I think your accountant, when they file for tax

preparation, depending on what you are approved at the IRS, if you're on the cash

or the accrual basis, then you're going to get primarily, most of my clients are

gonna report on a cash basis for taxes.

So it's just important to know what you use, what you send.

Your accountant certainly knows how to run a cash report in QuickBooks, but

for you to understand the different views, whether it's cash or accrual.

Something that I feel would be super valuable for our listeners

is let's put numbers to it.

This particular business, and we're just gonna use a fictitious business here, this

particular business starts the month with twenty-five thousand dollars in the bank.

It earns one hundred thousand dollars and reports eighty thousand dollars in

expenses on its accrual profit and loss.

That gives it twenty thousand dollars in profit.

What happens to the cash, Papa?

I think when you look at the fact that the customer pays eighty-five

thousand of a hundred thousand.

So right there you've got the fifteen thousand is still owed.

Of the eighty thousand in expenses, seventy-eight thousand is paid in cash.

And in our example- We talk about the 2,000 is depreciation.

So rather than it being 80,000, you have in expenses, you have 78 because

depreciation is a non-cash item.

So in other words, depreciation does not require a cash payment this month.

That leaves 7,000 the cash generated by operations.

The business also pays 10,000 for equipment recorded as an asset and

repays 5,000 of a loan principal and pays the owner a 12,000 equity draw.

The draw is separate from any owner wages already included in expenses.

For example, if they're a subchapter S corp, they could

possibly be drawing a salary.

Those payments use $25,000 and the cash falls by 20,000,

leaving 5,000 in the bank.

So Erica, those are a lot of numbers.

Yeah.

Yeah,

it is.

So let's, let's just break them down a little bit more succinctly, okay?

The, the idea the business starts with 25,000.

The customer payments received are actually 85, and so the cash operating

expenses paid were 78,000, and the equipment purchased for cash was 10,000.

So these are all minus.

Loan principal repaid was 5,000.

The owner equity draw, money the owner took out, was a negative 12,000.

So the cash at the end of the period is really only 5,000, not the 20,000 that

was reported on the profit and loss.

So it's important to look at what happened during the month and expenses that you

don't see them on the profit and loss.

So very good, and I will put in our show notes, I'll put this visually

out so you all can see what we're actually talking through 'cause I feel like

this is important to understand this.

I'm sure this comes up a fair amount in the business, doesn't it, Papa?

These particular questions are some that you hear all the time.

Yeah, I think you're so right.

Clients may see money coming in and, but they don't see the money going out.

So they oftentimes say, "Where did the money go?"

Yeah.

And what they kind of forget is when they take out a loan, that loan

has to be repaid, and that's money out.

And so they don't see that.

After they got that shiny new truck-

Right

then when they drive it around, oh, by the way, the bank payment is

scheduled every month for that withdrawal.

The second area, which is a really big item, is the fact that they

look at what maybe they're gonna draw out of their business and…

but they don't see the money that's not collected.

So it's important that the owner has a really good understanding of

their accounts receivable, and that's gonna be one of our talking points.

But clearly, the, the getting one's invoicing out timely and handling,

understanding the whole movement of cash is important for a small business.

Yeah, absolutely.

Okay, so this business made, our fictitious business here,

maybe we should give it a name.

Okay, let's call it The New Tech Company.

So The New Tech Company made a $20,000 profit, but its cash

fell from 25,000 to 5,000.

Both can be correct.

The reports are showing different parts of what happened.

So let's start with the $15,000 the customers haven't paid.

How does an owner find out whether the cash problem is simply the invoices,

is simply that invoices are taking too long to turn into payments?

I think you need to review the accounts receivable aging.

But step back just a little bit further and say, how soon from

the time you delivered the service did you create the invoice?

Because some of my clients wind up sitting on their invoicing for months.

So it's important that, one, you get your invoicing done timely and

accurately, but you need to review your accounts receivable aging.

Look at which invoices are overdue, how old are they, is there any kind

of dispute, and when can payment be realistically be expected?

An invoice on the accrual profit and loss can contribute to

profit before it produces cash.

In the example of 15,000 remains in the accounts receivable.

Ask whether invoices are issued promptly.

We just talked about that.

Payment terms are clear and someone follows up.

A customer promise to pay and an actual payment are different events.

So when you look at clients, so an example I would tell you that if we

have a small business that he does well servicing all that, and he's a busy, has

a busy business- And he will create paper invoices or kind of a paper product that

will sometimes just sit on his dashboard.

Okay?

So he will have all the documentation available for his service,

but it doesn't get invoiced.

So I think where he's moving to now is a product where he creates the invoice

at the time the service is delivered, and in some opportunities, he's

actually collecting for that invoice.

So that can make a big difference in increasing his cash flow.

Absolutely.

Okay, so could a business actually make its cash problems

worse by getting busier, Papa?

Yes.

More work can require paying employees, buying materials before customer pays.

Growth can increase the cash need needed to carry the

business, the gap, if you will.

For a business that holds inventory as an asset, buying more stock can

use cash before the related cost is recognized when their inventory sells.

So you need to ask whether money is tied up in slow-moving inventory.

We still have a client who's in a hair salon, and she really had to

look at what she was tying up in her product if that was sitting on

the shelf and that it wasn't moving.

So she had to really rein in her inventory, and it opened

up more cash once she did that.

The, when she paid attention to what sells and what she wanted

to carry, that was important.

Understanding your inventory is critical.

We have some customers that will collect deposits and based on the

appropriate work and agreement, and that is an important cash flow tool

that will help your business cash-wise.

So good, Papa.

Okay, so what about the other side now, the bills we haven't paid yet?

A healthy bank balance should look different once I know that is about

to come due, doesn't it, Papa?

Certainly.

We talked about this before when we looked at the accounts payable,

but in many ways, having a good accounts payable aging is important.

So keep an eye on your payables and when they're due.

So in many ways, when you go to a supplier and you have credit,

they are indeed extending.

You're getting the material that you can use for the job

before you have to pay for it.

Mm-hmm.

So if you have 30-day terms, then it's important to know that you

have 30 days from the time that the bill date in order to make payment.

So just looking at your payables, understanding you'll have certain cash

needs, payroll expenses, your taxes, your debt payments, and other obligations.

So a bill already recorded on the accrual basis will show up in the profit and

loss, but it may affect your cash later.

So in other words, that bill that you put in is gonna show up in the profit

and loss, but the cash will follow.

So it's important, again, that you understand that the need for cash.

If cash improved because bills were delayed, the obligation still exists.

Look at your payable list and plan appropriately for cash needs.

Love that.

Okay, so now speaking of cash, now let's look at the cash that left the business

for equipment, the loan, and the owner.

Why wouldn't all of that simply show up as expenses on the profit and loss, Papa?

Because those are not expense items, okay?

They will not show up on the profit and loss.

The example of the $10,000 in equipment purchase, it's is a business asset.

Mm-hmm.

Cash leaves now, and then that is expensed at a time in terms of how

that's handled for depreciation.

It's a cost over time.

So in our example back when we looked at this earlier, we used $2,000

that was included in- An expense.

It reduced the profit without any cash payment this month and does

not relate to the new equipment.

It doesn't all relate because you purchased a $10,000 piece of equipment

and you depreciated $2,000 in non-cash.

So some purchases may be expensed when under accounting rules tax-wise,

so you need to understand with your accountant what is the appropriate tax

benefit for you in purchasing equipment.

So this time of the year, that becomes a pretty important discussion.

Absolutely.

Okay, so we touched on principal and interest in episode 43.

Remind us why that split matters when someone is trying

to understand their cash.

Because principal reduces the loan liability on the balance sheet.

Interest generally appears as an expense.

Both use cash when paid.

The example we had of $5,000 is principal only.

Interest is already included in the cash operating expense,

so we do not subtract it again.

So looking at cash, if the payment is broken down principal and interest,

some people will take a, a loan out, and those loan proceeds may

increase your bank balance, but there's no sales revenue for that.

So you need to check on the, your cash flow statement to understand, "Oh, I've

got more money than I thought I would.

Oh, by the way, we took out a loan."

So yeah, just understand where your cash is coming from.

Good point, Papa.

And the $12,000 paid to the owner, why does that matter even if the

business still reports a profit?

Because that is a owner draw.

All right?

Cash will come out, but it does not affect the profit and loss.

It's a balance sheet account.

So in other words, the owner may draw out what they feel like they need as

long as they have the cash available, but it may hinder the business

from paying its operating expenses.

So it's important that obviously the owners get paid, and to keep up with the

cash flow needs, looking at the, what's needed for the next month or two weeks

or one week as far as payroll expenses and accounts payable and so forth.

So it all gets wrapped together looking at money out.

Absolutely.

Okay, so if I only study the expense lines, I can miss some major uses of cash.

I need to see the equipment, debt, and owner activity too, don't I, Papa?

And someone listening might be thinking, "I understand the example, but where

do I look in my own QuickBooks?"

Which reports, Papa, would you put in front of them?

Absolutely.

We need to understand that the, the profit and loss is defined in a period,

if you look at as the last maybe completed month, and you need to understand kind of

which reports, how you're going to look at it, and understand if you're gonna

run the profit and loss, then you're gonna wanna run it on an accrual basis.

'Cause that's going to tie it back to your balance sheet,

and you want to start there.

And you want to review your comparative balance sheet at the start and the end

of that period, and look for changes in cash, receivables, inventory,

payables, assets, and debt, and equity.

You can run a statement of cash flows for that same period when

available in your QuickBooks version.

It connects profit with cash movement through operating,

investing, and financial activity.

And that's really important because a cash flow report is so

helpful in looking at your cash.

QuickBooks Online runs this report on the accrual basis, so clearly

that is extremely helpful in terms of looking at your cash.

And what oftentimes I find is that good old-fashioned look at your beginning

cash and your ending cash balance.

Compare that with your bank account, and then you can usually

understand the movement of your cash.

So again, that's a, a quick way to, again, look at your comparative balance

sheet, and you can oftentimes get a quick picture of the health of your company.

Love that.

Okay, does a statement of cash flows tell me why a specific customer hasn't paid, or

do I need another report for that, Papa?

No, you don't use the cash flow report to look at

specific customers who've paid.

Use the cash flow statement.

It identifies the area to investigate.

You'll need to have the accounts receivable aging, and that

identifies unpaid customer invoices.

And look at the accounts payable aging for reviewing unpaid bills.

Look at loan balances, asset purchases, and equity activity may need their own

account detail and supporting documents.

The summary points, so you can look at the, again, the comparative balance sheet.

That's helpful in looking at your loan balances, your asset purchases,

and what happened with your equity.

And sometimes there's transferring money between two- Business

accounts that is oftentimes useful.

So if some people have a savings or they have various accounts, they have

to track their cash usage and the need to move it from one account to another.

While it doesn't necessarily change the business total cash-

moving cash is, in some ways, part of how the business operates.

Very true, Papa.

That gives us a very useful question for the bookkeeper.

Can you walk me from the profit we reported to the change in our cash and

show me the transactions that explain it?

So once we understand where the cash went, Papa, how do we use that information

to avoid being caught short next month?

Yeah, so I think you could build, again, looking at the cash

report, the cash flow report, you can build a simply weekly cash forecast.

Begin with the cash actually available, list expected account

customer collections by the week they are realistically likely to arrive.

So start with what's on hand at the bank, look at your cash payments or

cash receipts, and then look at your expected expenses, including payrolls,

vendor bills, taxes, loan principal and interest, equipment, and owner

withdrawals, and then carry each week's ending balance into the next week.

So you can look week one, week two, week three, week four, and it's

really can be a good little tool for you to say, "Oh, here, we're

gonna have a problem in week three."

Mm-hmm.

"So we better start to now anticipate what we need to collect."

That makes sense.

So it could be a very useful tool that the bookkeeper can actually do that

you can have on your desk weekly, and then you can ask questions about it.

So it's a…

It would be a nice little tool to have.

Yeah, absolutely.

That'd be a great tool.

Okay, so just looking at the bigger picture, Papa, how does

all of that fit with the business budget we talked about last week?

How does this picture come together?

One is a big picture.

Overall, right?

The budget.

Your income and expenses and so forth of what you project.

That's the big picture of what you anticipate that will come in.

But when you look at your little weekly forecast, it's actually what you will

know that will come in cash-wise.

So one is a big picture profit and loss, how are we doing

comparatively to what we projected?

The other is more of a weekly, a week-to-week encounter with your cash.

So you can, if you have a cash shortfall, then you might be able

to look at your budget and say, "Oh, our projection was either higher

on income or higher on expenses."

Or you can look at that and say, "Oh, I can see where we might have projected

this, but this is what's actually happening week to week with my cash."

So good, Papa.

Okay, so that helps us separate a temporary timing problem from a business

that needs to improve its profitability.

We'll spend more time on that profitability question in

episode 46, so stay tuned.

Okay, so let's give everyone one practical thing to do this week, Papa, 'cause

you know how much I love being able to give our listeners the opportunity to

move from just listening to actually making changes in their business.

So set aside 15 minutes, you guys.

Just 15 minutes.

You don't need to set aside a whole day, but just 15 minutes, and choose

your last completed month first.

First, check the dates and accounting basis on your profit and loss.

Write down the profit or loss for that month.

Second, write down the total cash at the beginning and end of the month across the

business bank accounts you are reviewing.

Did cash rise or fall, and by how much, you guys?

That's important.

Third, open the statement of cash flows for that same period, or ask your

bookkeeper to help explain the difference.

Look for unpaid customer invoices, inventory, equipment purchases, loan

principal, and owner withdrawals.

Choose the biggest item that needs attention.

Write down who will investigate it and what you want to know.

Then look ahead to the next payroll and major bills so you can see

whether timing needs attention.

So Papa, if someone does that and still cannot explain the

difference, what should they ask for?

They need to ask the bookkeeper or the accountant

for a clear explanation of cash.

Again, I think our little cheat sheet that we started with can

oftentimes answer those questions.

Get the bookkeeper to start with the beginning cash, and then break it down

to where we are anticipating the money will come in and how much will go out.

And so just understanding that there needs to be a clear picture of cash.

And bring the reports and address specific questions.

So ask specific questions.

Because if you have the data right in front of you, you can

say, "Oh, we really do need to work on our accounts receivable."

Mm.

Or perhaps we need to look at the timing of paying our bills.

Mm-hmm.

So we can make modifications through the month and not wait to say at the end

of the month, "Where did the money go?"

Yeah.

Absolutely.

Right?

So I think it shouldn't be a question.

Yeah.

If we work at this weekly or in our cash flow, then we're gonna see the picture.

Absolutely.

And I want everyone to reference back to episode 41 and that monthly

health check that we put together, because I feel like that is a great

starting point for someone that just feels a little lost in all of this.

Start there.

That is such a great place.

And remember, 15 minutes is enough to identify a question.

It is not a promise that every cash issue can be solved in that time,

but it is enough to start digging in and figuring out what's happening.

That's the assignment, you guys.

Explain one important difference between your profit and your cash.

Then decide what needs to happen next.

You know, a profitable month can still leave you short of cash.

Today's example showed why some of the revenue was still waiting to be collected,

and cash also went into equipment, debt repayment, and an owner draw.

Understanding those movements helps you ask a much more useful question than

simply, "Why is my bank balance low?"

You can find the area that needs attention and make a plan around it.

If you're not confident that the numbers in QuickBooks are accurate enough to

answer these questions, start with our free QuickBooks Clarity Scorecard.

You'll find the link in the show notes and also at our

website, leedavisandcompany.com.

And if you'd like more support understanding your QuickBooks

and using QuickBooks to make decisions, join our wait list for

the QuickBooks Mastery Program.

That link will be in our show notes as well, and we'll let

you know when enrollment opens.

In episode 46, we're going to look more closely at your profit and loss.

Are you actually making money?

What your P&L should be telling you.

We'll talk about how to read the business performance and decide where to focus.

Papa, what is the one question you want business owners to take away from today?

I think the question that they want to answer is that

they don't want surprises.

No.

So understanding where your cash is and what's needed for this

week is probably a place to start.

Yes, absolutely.

And if this episode truly helped you guys, please, we'd love for you to

follow this show, QuickBooks Mastery for Small Business Success, and

share it with a business owner who has wondered where their money went.

Because I know all of you know someone, all of you are connected to other

business owners that have the same questions, so let's help each other out.

And you can send your questions to [email protected],

and we might feature that question on a future episode.

You guys, thanks so much for joining us.

This has been one crazy ride.

We are coming up on a year of podcasting, and we're almost at 9,000 downloads.

That just blows our minds.

Mm.

We love that you are on this journey with us.

We love that you are enjoying what we're putting out there.

We will continue to do this, because we are having a blast, and we know that you

guys are benefiting from this as well.

Awesome.

So thanks for joining us.

I'm Erica Northrop.

And I'm Lee Davis.

We'll see you next time.

Yeah, we'll see you next time, guys.

Bye for now.

Thanks for tuning in to QuickBooks Mastery for small business success.

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See you next time.