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

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

When evaluating the profitability ofindividual business units, relying solely on your bank account can bemisleading. While cash flow is critical for day-to-day operations, it doesn’treflect the true financial performance of each unit. Profit and Loss (P&L)statements, on the other hand, provide a detailed view of revenues, costs, andexpenses, offering a more accurate measure of profitability.

Your bank account shows cash inflowsand outflows, but it doesn’t account for accrued income, unpaid invoices, orfuture 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 unitinvesting in growth may show a temporary cash deficit but be highly profitableon the P&L.

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