UNDErstanidg your p&l

Should My P&L or Bank AccountDetermine My Profit of Each Business Unit?

When evaluating the profitability of individual business units, relying solely on your bank account can be misleading. While cash flow is critical for day-to-day operations, it doesn’t reflect the true financial performance of each unit. Profit and Loss (P&L) statements, on the other hand, provide a detailed view of revenues, costs, and expenses, offering a more accurate measure of profitability.

Your bank account shows cash inflows and outflows, but it doesn’t account for accrued income, unpaid invoices, or future liabilities. A unit might appear profitable based on cash in the bank, yet be operating at a loss when all costs are considered. Conversely, a unit investing in growth may show a temporary cash deficit but be highly profitable on the P&L.

To make informed decisions, use your P&L as the primary tool for assessing profit—then use your bank account to manage liquidity.