Where Is My Money Going?

“I’m Making More Money Than Ever, So Why Doesn’t It Feel Like It?”

I know I’m not the only one who has heard—or said—this:

“I’m making more money than I ever have, so why doesn’t it feel like it?”

I’ve also heard:

“I just need to make more sales. Then I’ll have more profit and more money in my pocket.”

It sounds logical, right? But it’s one of the most common misconceptions I see in small businesses.

More sales do NOT automatically mean more cash.

More revenue does NOT automatically mean more profit.

A few years ago, I started working with a business that was really struggling. At the time, they were not open on Mondays. The owner decided they needed more sales, so they opened their doors seven days a week. It didn’t work. Less than a year later, the business filed for bankruptcy. So, what happened? Why didn’t more sales solve the problem?

Because every sale comes with a cost.

Revenue, Profit, and Cash Are Three Different Things

This is an important distinction.

Revenue is the money your business earns from selling its products or services, before you subtract your costs and expenses.

Profit is what is left after you subtract your costs and expenses from your revenue.

Cash is the money actually available in your business bank account or on hand.

They are connected, but they are not the same thing.

For example, you could have $100,000 in sales and still have very little cash available. Why? Because it costs money to make and deliver what you sell.

There are costs directly related to providing your product or service. These are often called Cost of Goods Sold (COGS). Then there are the costs of running the business, such as rent, payroll, software, insurance, advertising, and other Operating Expenses (OPEX). So when your business earns $1, not all of that $1 belongs in your pocket. Some of it has to pay for the business. That’s something to keep in mind when you find yourself asking: “I’m making more revenue, so where is my cash?”

Sometimes the Problem Is Your Pricing

Recently, while preparing financial statements for a client, I noticed that her net profit had been decreasing over the previous few months. We scheduled a meeting to talk about what was happening. One of the things we discussed was the rising cost of…well…everything.

The products she purchased and resold to her clients had become more expensive. That meant it was costing her more to provide those products, which was eating into her profit. We talked about ways she could recover some of those increased costs by passing them along to her clients.

She was passionate about keeping her products accessible, so she didn’t want to raise prices significantly.

But she also realized something important:

She couldn’t continue absorbing every increase in cost and still expect her profit to stay healthy.

During our conversation, she also realized she had been giving away a lot of value to both current and prospective clients for free. So she made some changes.

She repackaged some of her products, increased prices for new clients, and made a smaller price increase for existing clients. Those changes helped increase and stabilize her profit.

Sometimes the answer isn’t “I need more sales.”

Sometimes the answer is “I need to make more money from the sales I already have.”

Revenue Does NOT Equal Cash in the Bank

Another reason you may be asking, “Where is my money?” is that you made the sale—but you haven't been paid yet.

Most of the businesses I work with get paid at the time of service or before the service is provided. But not every business operates that way. Open invoices can create a serious cash-flow problem.

I see this often with General Contractors and Subcontractors.

For example, a contractor may sign a $500,000 contract and feel like they just landed a huge sale. But that $500,000 isn't necessarily sitting in the bank.

The contractor may have to pay for materials, subcontractors, payroll, and other project costs before receiving payment from the customer.

Now imagine the customer pays a deposit but is late paying the next few invoices.

The contractor still has bills to pay to keep the project moving. That $500,000 sale may look great on paper, but the business can still be under serious cash-flow pressure.

This is why when you get paid matters just as much as how much you sell.

Having clear payment terms, collecting deposits when appropriate, invoicing promptly, and following up on late payments can all help improve cash flow.

The Balance Sheet Can Tell a Different Story

There are other places your cash can go that you won't see as current expenses on your Profit and Loss statement.

This is where your Balance Sheet becomes important.

Two big examples are:

• Loan principal payments

• Owner draws or personal expenses paid from the business

  
  

Loan Payments

Sometimes taking out a loan is necessary. You may need money to start the business, purchase equipment, expand, or get through a difficult season.

But before taking on debt, you need to understand how the payments will affect your cash flow.

Here's an important distinction:

The principal portion of a loan payment does not show up as an expense on your Profit and Loss. But it does reduce the cash in your bank account.

Interest is different. Interest expense does affect your profit. This is one reason a business can show a profit on its Profit and Loss statement while still feeling like there isn't enough money in the bank.

Remember that business I mentioned at the beginning? One reason more sales didn't solve the problem was that the business was overleveraged. It had taken on too much debt, and the business model wasn't generating enough cash to keep up with the loan payments and other costs of running the business.

More sales couldn't fix a business structure that wasn't working.

Owner's Draws Can Also Drain Your Cash

Another big one I see is Owner's Draw. If you're a Sole Proprietor or an LLC taxed as a sole proprietorship or partnership, money you take from the business for yourself generally isn't recorded as an operating expense on the Profit and Loss.

And that's important to understand.

Taking money out of the business does not reduce your business's profit.

But it does reduce the cash available in the business.

Yes, you should pay yourself. You went into business to make money!

But the slope gets slippery when your business bank account starts functioning like your personal bank account.

I see this ALL THE TIME, and it’s a big “No, No.”

When you use your business account for personal purchases, it becomes much harder to see:

• What the business is actually spending

• How much cash the business really has available

• How much money you're taking out of the business

• Where your money is actually going

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And when you aren't paying attention to those numbers, it becomes very easy to take too much money out of the business.

That can put a serious strain on your cash flow.

So, Where IS Your Money Going?

If you're making more sales but don't feel like you have more money, don't automatically assume you need more sales.

Instead, start asking better questions:

Are my costs increasing?

Are my prices keeping up with my costs?

Am I collecting my invoices quickly enough?

How much debt am I carrying?

How much cash is going toward loan payments?

How much money am I taking out of the business?

Are my expenses growing faster than my revenue?

Your numbers can help you answer these questions. That's where bookkeeping becomes more than just recording transactions.

Your bookkeeping should help you understand what is happening in your business so you can make better decisions about what to do next.

Because the goal isn't simply to make more sales.

The goal is to build a business that actually puts more money, time, and peace of mind in your pocket.