[et_pb_section fb_built=”1″ _builder_version=”4.16″ da_disable_devices=”off|off|off” global_colors_info=”{}” da_is_popup=”off” da_exit_intent=”off” da_has_close=”on” da_alt_close=”off” da_dark_close=”off” da_not_modal=”on” da_is_singular=”off” da_with_loader=”off” da_has_shadow=”on”][et_pb_row column_structure=”1_3,2_3″ _builder_version=”4.23″ background_size=”initial” background_position=”top_left” background_repeat=”repeat” width=”100%” custom_padding=”||0px||false|false” locked=”off” global_colors_info=”{}”][et_pb_column type=”1_3″ module_class=”table-contents” _builder_version=”4.23″ background_color=”#f3f2f6″ custom_padding=”25px||25px||true|false” sticky_position=”top” sticky_limit_bottom=”section” sticky_position_tablet=”top” sticky_position_phone=”none” sticky_position_last_edited=”on|desktop” border_radii=”on|24px|24px|24px|24px” global_colors_info=”{}” custom_padding__hover=”|||”][et_pb_text _builder_version=”4.23″ text_font=”||||||||” global_colors_info=”{}” background__hover_enabled=”on|desktop”][\/et_pb_text][\/et_pb_column][et_pb_column type=”2_3″ _builder_version=”4.16″ custom_padding=”|||” global_colors_info=”{}” custom_padding__hover=”|||”][et_pb_text admin_label=”Intro” _builder_version=”4.27.7″ header_2_font_size=”32px” custom_margin=”||0px|||” custom_padding=”||28px|||” hover_enabled=”0″ header_2_font_size_tablet=”30px” header_2_font_size_phone=”26px” header_2_font_size_last_edited=”on|tablet” global_colors_info=”{}” sticky_enabled=”0″]<\/p>\n
Knowing how to read your business’s key financial statements \u2014 a profit and loss statement, cash flow statement, and balance sheet \u2014 makes you a better business owner. Why? Because they can help you answer common dilemmas in business, like the profit-rich but cash-poor problem. They also give you the tools to make smarter and more informed business decisions.<\/p>\n
Let\u2019s look at how the financial statements are linked for your small business.<\/p>\n
A profit and loss statement<\/a> shows your business’s profitability; a cash flow statement<\/a> shows where money comes in and out; and your balance sheet<\/a> shows what your business owns and owes. Each statement matters in its own right, and while they serve different purposes, they are also sensitive to changes in the others. Let\u2019s see how all three work together.<\/p>\n Your profit and loss statement shows how much money your business makes overall, while your cash flow statement shows how much money you have in the bank. Think of profit like your take-home pay and cash flow as your spending money. If you earn a lot of money but struggle to cover monthly bills, you have high profit and low cash flow.<\/p>\n Profit & loss takes your revenue and subtracts expenses like cost of goods sold, operating expenses<\/a>, depreciation, amortisation, and taxes to find your net profit \u2014 the bottom line. In most cash flow statements, net profit is your starting line item. From there, under the indirect method for accrual accounting, you add back depreciation and amortisation. This gives you a figure that changes based on cash from operating, investing, and financing activities.<\/p>\n [\/et_pb_text][et_pb_code _builder_version=”4.27.7″ _module_preset=”default” global_colors_info=”{}”]<\/p>\nProfit & loss vs cash flow statement: how are they linked?<\/h3>\n