"Profits are an opinion, cash is fact."
Unknown
Each year my accountant and I would sit down just before year-end and plan how to close the books, taking into account the realities of income and corporate tax rules.
Nothing illegal, just maximizing what the company would keep. Obviously the less profit I reported the less tax I paid and while everything we did was legal, the process taught me how little value there was looking at a P&L when evaluating a company's performance.
Now I see a regular stream of start-up companies telling me not how much they will keep, but rather how much they will make.
There is a big difference.
Each year my accountant and I would sit down just before year-end and plan how to close the books, taking into account the realities of income and corporate tax rules.
Nothing illegal, just maximizing what the company would keep. Obviously the less profit I reported the less tax I paid and while everything we did was legal, the process taught me how little value there was looking at a P&L when evaluating a company's performance.
Now I see a regular stream of start-up companies telling me not how much they will keep, but rather how much they will make.
There is a big difference.
Companies should focus on cash on hand rather than "profit". You can't spend what you don't have.
ReplyDeleteP&L and balance sheet analysis should be used to help plan the business but not as an indicator of how that plan is working.
ReplyDelete