Many people think profit and cash flow are the same, but they’re not. Profit shows how much your business earned during a specific period, while cash flow tracks the actual movement of money in and out of your accounts. Understanding this difference is essential to keep your business healthy.
Profit: Earnings During a Specific Period
Cashflow: Actual Money in and Money Out
For example, a company might show a small profit on its profit statement, but a much larger cash balance on the balance sheet. Why? This can happen because cash can come from previous years’ profits, loans, or other sources that aren’t counted as current-year profit.
Next, we’ll break down why cash flow can differ from profit and why it’s critical for your business operations.
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