Most contractors glance at their Profit & Loss statement and feel a sense of relief when they see the bottom line is positive. But one line in particular causes more confusion — and more false confidence — than any other:

Net Income.

Now, you might be thinking, “Isn’t that the goal?” Yes… and no. Here’s the problem: Net income doesn’t always reflect what’s actually in your bank account. That’s because your P&L doesn’t include loan payments, equipment purchases, owner draws, or changes in accounts receivable and payable.

So you could technically be “profitable” — but still have no cash.

Real World Mistake & Lesson: I worked with a plumbing company that showed $180K in net income on their year-end P&L. The owner was furious. “Where the heck is that money?!” he said. Turns out, they’d made major equipment purchases and were behind on collecting several large invoices. Once we looked at the full picture — cash flow, AR, and loan activity — the mystery was solved.

The lesson? Net income is a helpful indicator, but it’s not the whole story. Cash flow is king.

 Pick up your free copy of my new book, “The 7 Minute Conversation-How to Hear the Story Your Small Business Financial Statements Are Telling You-CONTRACTOR EDITION”.  Go to www.7MinuteConversationBook.com

Ready to find out where your cash and profits are really going? Book your free 15-minute Profit and Cash Flow Call with me. No pressure. Just real clarity. I’ll help you see where your money’s hiding — and what to do about it. Schedule at www.CashFlowCallWithLarry.com