Cash Flow vs. Profit: What’s the Difference and Why It Matters

Understanding the difference between cash flow and profit is crucial for any business owner. While both are key financial indicators, they measure very different aspects of your business’s health.

Profit is what’s left over after your business subtracts all expenses from total revenue. It’s often broken down into gross profit (revenue minus cost of goods sold) and net profit (what remains after all other expenses, including taxes and overhead). Profit tells you whether your business is making money on paper.

Cash flow, on the other hand, tracks the actual movement of money in and out of your business. It reflects how much cash you have on hand at any given time, regardless of what your profit and loss statement shows. A business can be profitable but still struggle with cash flow if payments are delayed or expenses pile up quickly.

Why it matters:

A profitable business without enough cash to pay bills can quickly run into trouble. Monitoring both profit and cash flow helps ensure your business is not only making money, but also staying financially stable.

Need help understanding your cash flow or profitability? Reach out to our team today for a deeper look into your business’s financials.