Cash Flow for Small Business

Beginner: Cash Flow vs Profit

Two different questions

Profit asks: over this period, did revenue beat costs? Cash flow asks: on any given day, is there money in the account to pay what is due? You can win one and lose the other.

A business can be profitable for the year and still miss rent in March because the money had not arrived yet. Both questions matter, but cash flow is the one that can shut your doors this week.

Money in, money out, and timing

Cash flow is simply the movement of money into and out of your business and, crucially, when it moves. Cash in is customer payments and loans. Cash out is bills, supplies, and your pay.

The timing is the whole game. If big money goes out on the first and customer money comes in on the twentieth, you can be perfectly profitable and still panic in the middle of the month.

Why profit and cash split apart

Three common things pull them apart. You make a sale but the customer pays later, so profit shows now and cash shows up weeks on. You buy inventory up front, so cash leaves long before the sales come in.

And loan payments take cash without touching profit the way a normal expense does. Once you see these gaps, the mystery of profitable but broke disappears.