The three statements, in plain words.
You don't need an accounting degree to run a business on real numbers. You need this page.
P&L — "Did the business make money?"
Revenue earned minus costs incurred over a period. Note earned and incurred — not received and paid. A great P&L month can still be a terrible cash month if customers haven't paid yet.
Balance sheet — "What does the business have and owe?"
A snapshot at a moment: cash, equipment, money owed to you (assets) versus loans, unpaid bills, taxes due (liabilities). The gap is equity. If the P&L is the movie, this is the freeze-frame — and it's where errors hide, because every misbooked entry lands here eventually.
Cash flow — "Where did the money actually go?"
The reconciliation between "we're profitable" and "the account is empty." Cash moves for reasons the P&L never shows: loan repayments, equipment purchases, customers paying late, inventory piling up.
The five numbers to watch monthly
| # | Number | Question it answers |
|---|---|---|
| 1 | Cash on hand | Can we make payroll, now and next month? |
| 2 | Net cash flow | Are we filling the tank or draining it? |
| 3 | Gross margin | Does the core business work? |
| 4 | Receivables overdue | Who is using us as a free bank? |
| 5 | Fixed monthly costs | How big is the nut we crack before profit starts? |
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