Why Does My Bank Balance Never Match My Profit and Loss?

They will never match, and that's ok!

5 Reasons why and what it means for your business.

You check your bank account and see one number. You check your profit and loss (P&L) report and see another.And the two rarely agree.

It feels confusing, sometimes even worrying. But here’s the truth: your bank balance and your P&L are measuring completely different things.

If you try to run your business off the bank balance alone, you will always feel one step behind.

Here’s why they don’t match and what to do about it.

1. Timing differences

Your bank only shows what has already happened: money in and money out.It doesn’t show what has been invoiced but not yet received. It doesn’t show bills you owe but haven’t paid.

That’s why the bank balance is always out of sync with reality. To know the true financial position of your business, you need visibility of:

• What’s owed to you (accounts receivable)

• What you owe others (accounts payable)

  
  

2. Accounting adjustments

The P&L is designed to show performance in a given period, not just cash moving around.

Example: You raise a £2,000 invoice for a project that runs over two months. Your bank will show the whole £2,000 when it’s paid. But your P&L should only show £1,000 in the first month and £1,000 in the second, so your revenue matches the work delivered.

This matching principle is what gives you meaningful monthly numbers. Without it, you can’t see whether your business is truly profitable in a given period.

3. VAT and other hidden liabilities

Your bank shows client payments including VAT. But that money isn’t yours. It belongs to HMRC.

If you forget this, you risk spending cash that was never really available. That’s why strong controls are essential: you need to separate what’s genuinely business income from what’s just tax you are holding temporarily.

4. Subscriptions, payroll and loan repayments

Your bank balance can look fine mid-month, but then the regular payments land and it feels like the floor drops out.

• Payroll and pensions: PAYE, pensions and salaries often leave the account a week or two after revenue has come in. If you only look at the balance, you might spend cash that was already earmarked for your team.

• Loan repayments: The bank shows the full repayment going out. But in your P&L, only the interest is an expense, the capital isn’t. That mismatch can make your accounts look healthier than your cash actually is.

• Subscriptions: Software and service fees renew automatically, and they add up. They don’t show in your P&L until allocated, but your bank takes the hit in one go.

  
  

This is why “managing by bank balance” is so risky. You feel fine today, then tomorrow a chunk disappears and you’re scrambling. Your bank balance will never match profit and loss.

5. Personal expenses through the business

It’s common for owners to run personal costs through the business account. But this creates two problems:

1. It drains cash that should be reserved for operations.

   
   

2. It can backfire at year-end if you claim things you shouldn’t, leading to higher tax bills instead of savings.

   
   

Mixing personal and business expenses makes your bank balance even less reliable as a measure of performance.

Bank balance never matches profit and loss

Your bank account shows you cash. Your P&L shows you performance.

They will never fully match, and they are not supposed to.

The key is to build systems that connect the two: invoicing, expenses, VAT controls and monthly adjustments.

With those in place, your reports stop being confusing and start giving you clarity.

Frequently Asked Questions

Why doesn’t my bank balance equal my profit and loss?

Because they measure different things. The bank shows cash in and out. The P&L shows revenue and costs matched to the right period. They’ll never be identical.

Is it normal for the numbers not to match?

Yes. It’s expected. What matters is understanding why: timing differences, VAT, payroll, loan repayments and adjustments all cause gaps.

How do I know which one to trust?

Trust the P&L for performance, but keep an eye on cash for liquidity. The real solution is building systems that connect the two so you’re not caught off guard.

Want to see this in action?

At Alvido, We run a Diagnostic that maps exactly where your money is, where it’s going and how to avoid being misled by the bank balance. Start with a free discovery call.