Cash flow vs. Profit… What’s the difference?

Have you ever looked at your financial statements and wondered, “If I made a profit, where is the cash?” or “How come I have cash in the bank, if I didn’t make a profit?”  The reason is very simple, profit is not the same thing as cash!

Many business owners look at their financial reports and see a profit and go out and celebrate, or see a loss and go out and drown their sorrows. Hmmm, seems to always generate the same result in one sense…  Well, it probably should.

Have you ever tried to buy that drink with profit?  Try it some time, go to the bar with your profit and loss statement, show the bartender the profit at the bottom and ask for a drink.  I can pretty much guarantee that the bartender will then ask you for cash!  Profit is a theory! Cash is King!

Don’t go off the deep end in the other direction either, though.  You can’t effectively run your business from your bank account.  In the end, you need to have both. You need to understand what your profit and loss statement is actually telling you and you have to understand the cash flow in your business.  Invest time in learning how to read your financial statements and use them to manage your business, and learn to understand the ways that cash flows through you business and how you can manage it in the most effective and efficient manner.

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