Show me the Money

With the end of another financial year rapidly approaching, many and most enterprises take a closer look at their Profit and Loss statements to establish how well or otherwise their business has performed during the course of the year.

Quite often though the business owner or Manager is confronted with what can seem like a strange conundrum.

The P & L is showing a healthy profit yet the bank account has flat lined and isn’t showing a balance consistent with the profit figure.

“Show me the money” may well have been a well known phrase from the 1996 film Jerry Maguire, but it is not an uncommon reaction from owners of profitable businesses. After all where has the profit gone?

The answer invariably lies in the all important Balance Sheet of the business.

Depending on the nature of a particular business, the operating profit may well be reflected in an increase in a business’ debtors or possibly an increase in the stock holdings of the business.

Another possible solution could be the investment in additional plant or equipment needed in the business.

Any of these options, or a combination, may well hold the answer to the vexed “where has the profit” gone question.

What we can learn from this situation is that the Balance Sheet is a wonderfully revealing and powerful reporting tool that can help guide business owners and managers.

Comparing Balance Sheet movements for a specific period can prove just as important, if not more important, than a Profit & Loss report for most businesses.

All business owners should learn to embrace and understand both financial reports.

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