Why Your P&L Is Lying to You (And What to Look at Instead)

I see it every week. A contractor walks into my office, tax return in hand, pointing at the bottom line: "It says I made $247,000 last year. Where the hell is it?"

Good question. And the answer reveals why most contractors are running their business on the wrong information.

The P&L Tells You What Happened. Not Where the Money Is.

Your Profit & Loss statement (or Income Statement) shows revenue minus expenses equals profit. Simple math. But it's accrual-based, meaning it counts money you've earned but haven't collected, and expenses you've incurred but haven't paid.

That $80,000 invoice you sent to the GC in December? It's in your 2025 P&L as revenue. But the check didn't hit your account until February. Your P&L says you're rich. Your bank account says you're sweating payroll.

"Profit is an opinion. Cash is a fact."

I didn't make that up—it's an old CFO saying. And it's the single most important thing a contractor can understand about their financials.

The Three Numbers That Actually Matter

Instead of obsessing over your P&L, here's what you should be looking at every week:

1. Operating Cash Flow

This is the cash your business actually generates from operations. Not from loans. Not from selling equipment. Just from doing the work and collecting the money.

If your P&L shows $200K profit but your operating cash flow is $40K, you have a collection problem, a billing problem, or both. That gap is where your money went.

2. Accounts Receivable Aging

How much are you owed, and how old is it? AR over 60 days is a red flag. AR over 90 days is a five-alarm fire.

I had a plumbing contractor last year with $180K in AR over 90 days. That's not profit sitting in a report—that's money you may never see. The P&L counted it as revenue. Reality said otherwise.

3. Work in Progress (WIP)

For any contractor doing jobs that span more than a month, WIP is everything. It tells you:

• How much you've earned on each job vs. how much you've billed
• Whether you're overbilled (you owe the job) or underbilled (the job owes you)
• Which jobs are profitable and which are bleeding money

A healthy WIP report is worth more than a dozen P&Ls. It's the truth about where your money actually is.

So What Should You Do?

Don't throw out your P&L—it matters for taxes and trending. But stop using it to make decisions. Instead:

1. Build a 13-week cash flow forecast. Know exactly what's coming in and going out for the next 90 days.
2. Review AR aging weekly. Follow up on anything over 30 days. Get aggressive on anything over 60.
3. Run a WIP report monthly. Know which jobs are making money and which are underwater.

This is what I do for my fractional CFO clients. Not because the P&L doesn't matter—but because the P&L alone isn't enough to run a contracting business.

The Bottom Line

Your P&L is a scorecard. It tells you how you did. But you can't drive looking in the rearview mirror.

Cash flow, AR, and WIP are your windshield. That's where you need to be looking if you want to know where you're going—and whether you'll make it there with money in the bank.

If you're tired of your P&L lying to you, let's talk. I help trade contractors doing $3M–$8M close the gap between bid and bank. Book a 20-minute clarity call and I'll show you exactly where your money is hiding.