The Difference Between Cash Flow and Profit (and Why It Matters)
If you’ve ever thought,
"Wait — my business is profitable... so why do I feel broke?"
you’re not alone.
One of the most common (and costly) misunderstandings I see in small businesses is the confusion between profit and cash flow.
They’re related — but they’re definitely not the same thing.
And knowing the difference can make or break your business.
Let’s break it down in simple terms:
What Is Profit?
Profit is what’s left after you subtract all your business expenses from your revenue.
It’s what you see on your Profit & Loss Statement (also called your Income Statement).
Basic formula:
Revenue – Expenses = Profit
If your profit is positive, you made money during that time period.
If it’s negative, you operated at a loss.
Sounds simple, right?
But here's the catch — profit is just a snapshot on paper.
It doesn’t always reflect what’s actually sitting in your bank account.
What Is Cash Flow?
Cash flow is about movement — how cash comes in and out of your business.
Even if you have a profit on paper, you might not have collected all the cash yet (like unpaid invoices).
Or, you might have big cash expenses (like inventory purchases or loan payments) that don’t immediately show up on your Profit & Loss report.
In other words:
You can be profitable but cash-poor.
Or —
You could have positive cash flow even if you’re technically not profitable in the long term.
Why the Difference Matters (a Lot)
If you only focus on profit and ignore cash flow, you could end up unable to:
Pay your bills on time
Cover payroll
Invest in growth opportunities
Weather slow sales periods
Profit is important — but cash flow keeps your business alive.
Think of it this way:
Profit is a report card.
Cash flow is oxygen.
You need both, but if you run out of cash, the business can’t survive — no matter what your Profit & Loss report says.
Real-Life Example
Let’s say your business sells $50,000 worth of products in September.
On paper, it looks great — you have a $20,000 profit after expenses.
BUT:
You’re still waiting for $30,000 of that revenue to be paid by customers.
Meanwhile, you had to pay $15,000 upfront for inventory.
Result?
Your profit looks strong, but your cash flow is negative — and you might struggle to pay your vendors or cover rent.
How to Stay on Top of Both
Monitor your cash flow regularly (weekly or bi-weekly, not just monthly!)
Use cash flow projections to plan for upcoming expenses and slower seasons.
Stay on top of invoicing and collections so money actually hits your bank account.
Understand your financial reports — your Profit & Loss and your Statement of Cash Flows.
Work with a bookkeeper or advisor who can help you interpret your numbers and plan ahead.
Final Thoughts: Profit Looks Good. Cash Flow Feels Good.
It’s not about picking one over the other — it’s about understanding how they work together. You deserve a business that’s not just profitable on paper but strong, healthy, and sustainable in real life too.