How to Calculate True Cash Flow for Your Business: What the Profit and Loss Statement Doesn’t Tell You

To truly understand your cash flow, you need to look beyond the P&L. The video identifies four key areas where cash can “leak” out of the business without showing up on the P&L statement:

1. Debt Repayments

When your business makes payments toward loan principal, those payments aren’t reflected as an expense on the P&L. However, they still affect your cash flow. Interest payments may appear as an expense on the P&L, but the principal portion of the repayment is strictly a cash outflow that reduces your available funds.

2. Investments in Assets

Purchases of long-term assets such as vehicles, equipment, or property aren’t recorded as expenses on the P&L either. Instead, these are typically capitalized and spread out over time through depreciation. But the reality is, the full cost of the asset is paid upfront, draining cash from your business.

3. Income Tax Payments

Even though your P&L accounts for income tax as an expense, the actual payments made by the business or personally by the owner aren’t always immediately reflected in the statement. If you’re paying taxes out of the business's cash flow, it’s important to account for that to get a clearer sense of your true liquidity.

4. Owner’s Pay

As a business owner, the salary or distributions you take out of the business aren’t considered an expense on the P&L unless you're formally on the payroll. However, this money still exits the business and directly impacts your cash flow. Many owners are caught off guard by how much their personal draw can affect their available cash for operations or growth.