Why “Profitable” Doesn’t Always Mean “Cash-Healthy” — A Common Misunderstanding for Small Businesses

Posted on July 29, 2025 by Oozle Media

At LSA CPA, one of the most frequent points of confusion we see with business owners is this: “If I’m making a profit, why is my bank account still tight?” The answer lies in the difference between your profit and your cash flow—and it’s more important than most realize.

Profit Doesn’t Tell the Whole Story

Profit is what your financials show after subtracting expenses from revenue. It can look great on paper—your sales are strong, and your expenses seem under control. But that doesn’t mean your business is flush with cash. One key reason? Many critical outflows of money don’t show up as expenses on your profit and loss statement.

Loan Payments Aren’t “Expenses”

If you’re making monthly payments on a loan, only the interest portion is recorded as an expense. The principal—which is often the bulk of the payment—doesn’t appear on your income statement at all. That money is still leaving your bank account, but it won’t show up in your net profit. So while your P&L might show a solid margin, your cash flow could be drained by debt service.

Items That Don’t Impact Profit, But They Impact Your Wallet

The same concept applies to other balance sheet items.  Things like inventory purchases, personal expenses recorded as equity or sales tax payments. These obligations may not be reflected in your monthly expenses, yet they require real cash to meet. It’s possible to feel stretched thin financially while your books still say you’re “profitable.”

Why Cash Flow Awareness Matters

Cash flow is about what actually comes in and goes out of your account. It’s what keeps your business running day to day—covering payroll, rent, vendors, and unforeseen costs. Without a clear view of your cash position, even a profitable business can fall behind.

At LSA CPA, we help business owners go beyond the profit and loss statement. With cash flow forecasting and strategic planning, we help you anticipate and prepare for those hidden drains on your cash so you can make smarter financial decisions.

Bottom line: Profit is an important metric—but it’s not the only one that matters. If you don’t know where your cash is going, it’s time to take a closer look.

Want help translating your financials into real-world insight? Contact LSA CPA to learn how we can support your cash flow health.