Story = P&L, Execution = Cashflow

What is most important for a company to focus on? P&L or Cash Flow?

I think people get lost between the two, or confuse them for being the same thing. The difference is in the title of this post.

When you want to talk about how at a very high level, the company will bring revenues, highlight expenses, employees, CAPEX, OPEX, taxes etc - P&L is the way to go. It talks about how your numbers will look in Y1, Y2, Y3, Y4 and Y5.

Same drama - hockey stick growth, high sales per person, 50x ROI over 5 years. $100 Million Sales in Y5. Net profit over 25% in Y5. Thanks to Nesheim (Google him), most startup P&Ls look alarmingly similar across domains, markets and products. Great, the story looks Ok.

Now, Execution. Imaginary Execution = Month on month Cashflow. And when you get into actual Execution, we are talking about Weekly or even Daily Cashflows. What are the exact dates on which the revenues will come in? What are my expenses on the 31st of the month, and the 1st of the next month. Rent goes on which date? For the Product when are the expenses for vendors, transportation, assembly folks, and when are my revenues?

See it? Cashflow is a reflection of Execution. All the changes entrepreneurs go back to their investors with, in their "shift in plans", is basically a reflection of how right or wrong their cash-flows were w.r.t their original projections.

Here is a Tip. Do a monthly Cash-Flow for 5 years. Estimate in as much detail, your dates of revenues, dates of procurement of goods, periodicity of cycles, credit terms with suppliers (they will reflect in outgoes w.r.t incomes in your cashflow), salaries (which you hire etc). Use this to prepare your Yearly Cash Flows, and you will have a reasonably good idea of your estimated P&L.

Become as Cash-flow oriented an entrepreneur as you can be, and you will be doing yourself and your investors a BIG favor.