What's the difference between profit and cash flow?
Profit is the income earned less the costs associated with earning it over a period. It tells you whether the business model is generating a return, but it doesn't tell you exactly when money moves through the bank.
Profit tells you how the business performed
Profit is the income earned less the costs associated with earning it over a period. It tells you whether the business model is generating a return, but it doesn't tell you exactly when money moves through the bank.
Cash tells you what is actually available
Cash flow is about receipts and payments. Customers may owe you money, VAT may be due, loans may need repaying and stock may have been bought � all of which can move cash without matching the profit figure for that month.
Why the difference matters
A business can report healthy profit and still be unable to pay its bills. Equally, a temporary cash balance can look strong because tax or supplier payments have not yet left the account.
You need to watch both
Use profit reporting to understand performance and cash forecasting to understand affordability and timing. Neither number replaces the other.
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