Reading your monthly profit and loss: the three numbers most sole traders ignore

Most UK sole traders judge how their business is doing by looking at their bank balance. End of the month, balance is up, things are good. End of the month, balance is down, time to worry.

The bank balance is a poor proxy for business health. It mixes income, expenses, tax owed but not yet paid, and one-off purchases into a single number that can rise in an unprofitable month (because you've put off paying bills) and fall in a healthy one (because you bought equipment). It tells you nothing about which services are actually profitable.