Introduction
Profit and cash flow are closely connected, but they are not the same thing. Understanding the difference is essential for business owners.
What Is Profit?
Profit generally represents the amount remaining after relevant business income and expenses have been accounted for over a particular period.
What Is Cash Flow?
Cash flow focuses on the actual movement of money into and out of the business.
Why Can a Profitable Business Have Cash Flow Problems?
A business may record sales but not receive payment immediately. At the same time, it may have supplier invoices, salaries, tax liabilities and other payments that need to be settled.
Why Cash Flow Forecasting Matters
A cash flow forecast can help businesses understand expected future receipts and payments and identify potential funding requirements.
Profitability matters, but businesses also need sufficient cash to meet their obligations. Monitoring both provides a more complete view of financial health.
