QuickBooks Said I Made Money - Why Don't I Have Any?

You run a profit loss report in QuickBooks.  You look at the bottom line and you see that you made a profit.  Great!  Well, then, you say, why don't I ever have enough money to pay the bills? How many times have I heard that question! 

Let's take a look at an example.  The profit loss report shows your small business had a gross profit of $10,000 and that you had $8,000 in expenses.  Your net income would be $2,000.  Often people think this is the amount of money they have left after they pay their bills.  This assumption may not be true for a couple different reasons.

First, the report you ran may be calculated on accrual basis.  While an accrual based report is excellent for looking at the "big picture"; it is rather deceiving for cash flow. The amount of income is then what you billed - not necessarily received.  The amount of expenses would be the amount of the bills you received - not necessarily what you paid.    So, you change the report to cash based.  The report then shows that you received $12,000 and had expenses totalling $11,000.  You still think you should have $1,000 left over.  But, in reality, you don't.  Where did it go?

Second, take a look at your balance sheet.  Do you have any bank loans, auto loans, or equipment loans?  When you write a check to pay that  loan, part of the payment is for principle and part is for interest.  Only the interest expense is going to appear on your profit loss report.  The principle portion appears on your balance sheet. 

Example:  You wrote a check for a loan payment for $1000.  Of that amount, $600 was for principle and $400 was for interest.  Your profit and loss report will include that $400, but it does not include the $600.  So, the $1,000 you think you had left over may have actually paid that $600.  Then you had another loan you paid in the amount of $1500.  That amount included $800 in principle and $700 in interest.  Again, the interest was included in the profit loss, but not the principle.  In this case, that $1,000 you had left actually paid $600 and $700 in principle or $1,300.  You didn't have enough, so you ended up not being able to pay $300 worth of current bills.

It is not uncommon for a business to be paying down so many loans that the money they receive goes there instead of being able to pay current bills.  It is very difficult, if not impossible, to carry on business when your cash flow is negative.  It is always a good idea, especially when times are tough, to really examine your cash flow as well as your profit loss reports and your balance sheet reports.  There are many factors to take into account.  Talk to your QuickBooks ProAdvisor or your CPA to get some help in designing this report.  As Harold Geneen once said, "The drudgery of numbers will set you free".  The more accurate information you have about your business's numbers, the better able you will be in making good business decisions.