Finance.

The framework

1. 01

   The loop matters more than the line items.

   Three joins make the system. Net profit from the income statement drops into retained earnings, which is why equity moves without anyone depositing anything. The movement in every balance sheet account between two dates explains the cash flow statement: stock up is cash out, creditors up is cash in, and depreciation comes back because it never left in the first place. The closing cash on that statement is the balance in your bank. Trace those three joins once, on a real month, and you stop treating the pack as three reports and start reading it as one circuit with your money moving round it.

2. 02

   Run the tie-out: profit, then working capital, then bank.

   Once a month, write net profit at the top of a page and walk down to the closing bank balance. Add back depreciation and amortisation. Net profit already sits below the tax charge, so add that charge back as well and take off the tax you actually handed over — the difference between the two is tax you owe and haven't yet paid. Then subtract what working capital absorbed: the receivables that grew, the stock you bought, the creditors you paid down. Take off capital expenditure, loan principal and any drawings. What remains should be the movement in the bank. When it isn't, you've found something real — a misposted invoice, a director's loan that never got mentioned, revenue booked on work that hasn't shipped. Thirty minutes a month, and the exceptions start coming to you instead of the other way round.

3. 03

   What can each document not tell you?

   Each statement is blind in a way the other two correct. The income statement is silent on timing: it books a sale the day you invoice it and says nothing about the ninety days before the money lands. The balance sheet is a photograph taken on one date, and photographs can be posed — pay the creditors a day late and the year-end position improves. The cash flow statement is the most honest of the three and the least strategic, cheerful in a month where you starved the business of stock. Read any one of them alone and you inherit its particular blindness, which is why the pack has three documents in it.

4. 04

   Forecast the three together, or you're forecasting nothing.

   Most plans are a revenue line with a cost line under it, which is a profit forecast, not a business plan. Build the loop forward instead: put your assumptions about payment terms, stock and capital spend onto the balance sheet, let those drive the cash, and watch what the growth you've planned actually costs to fund. The number that surprises operators is almost never profit. It is the working capital that fast growth swallows in the months before the invoices come back. Day 36 gave you the cycle; a three-statement forecast tells you what next year's version of it will cost.