Understanding Your Business Numbers (The Plain Way)

Plain-English explanations for small business owners who want clarity, not accounting lessons.

Profit vs. Cash (The Difference That Confuses Everyone)

Profit is what your accountant shows you.
Cash is what keeps your business alive.

You can look profitable on paper and still run out of money — and many businesses do. Profit is just a score. Cash is survival.

Profit = your report card

Cash = the air in your lungs

You can live with a bad grade for a while. You can't live without air.

Why profit can look good while cash disappears

Customers haven't paid yet
You recorded the sale, but the money isn't in your bank. Profit says "great job," cash says "I'm starving."
Inventory is sitting on shelves
You paid for products, but they haven't sold. Your cash is trapped in boxes.
Loan repayments
Paying back loans uses real cash, but it doesn't show up as an expense in your profit.
Owner withdrawals
When you take money out for yourself, cash drops — even though profit doesn't.

If profit and cash ever argue, cash wins. Every time.

The 5 Numbers That Actually Matter

Forget the complicated ratios. As a business owner, these five numbers tell you almost everything about your financial health.

1. Revenue Trend

Are your sales going up, staying flat, or dropping? A downward trend is an early warning sign.

Example: If your shop's weekly sales fall three weeks in a row, something changed — fewer customers, lower prices, or new competition.

2. Gross Margin

This is the money you keep after paying for the product or service. It's the cushion that pays for rent, salaries, mistakes, and growth.

Example: Sell something for $100 that costs $60 → your gross margin is 40%. If that margin shrinks, even higher sales won't save you.

3. Operating Costs

Rent, salaries, software, subscriptions — the bills that show up no matter how sales are doing.

If these grow faster than revenue, profit disappears.

Quick win: Review them monthly. Cancel anything you don't use.

4. Cash Runway

How long you can survive if no money comes in.

Formula: Current cash ÷ average monthly expenses

Example: $60,000 in the bank, $15,000 monthly expenses → 4 months of runway. This number tells you how much breathing room you have.

5. Receivables Age

How long customers take to pay you. If your 30-day terms quietly turn into 60 days, your cash gets squeezed.

Tip: Offer small early-payment discounts or use automated reminders.

What You Can Ignore (For Now)

When you're building or growing a business, don't drown in accounting jargon. Focus on the numbers that help you make decisions.

You can safely ignore:

Accounting standards (GAAP, IFRS)
Only relevant if you're audited or raising investment.
Debits and credits
That's your accountant's job. You just need the meaning behind the numbers.
Depreciation
It's an accounting adjustment, not real cash leaving your bank.
Complex ratios
Useful for investors, not for daily decisions.

The Bottom Line

What matters most is clarity: where your money comes from, where it goes, and how long it will last.

If you can understand that, you can run your business with confidence — no accounting degree needed.

See What a Plain-English Report Looks Like

View a real financial report translated into language you can actually use.

View Sample Report