How is Profit Connected to Cash Flow?

As a small business owner, you’re concerned with how financially successful your business is.  But sometimes, even if you do small bookkeeping tasks, it can be difficult to make sense of things like profit and loss statements, balance sheets and other financial reports!

While every financial document contains important information on the financial health of your company, two very important pieces of data are your cash flow and your profit.

However, many business owners confuse the two.

Cash Flow
Cash flow simply means tracking the amount of money going in and coming out of your business at any point in time.

While cash flow and profit are related, having a large cash flow doesn’t necessarily mean that you’re making a profit.  You may have an inflow of cash, but it may be that you owe a great deal more money than what is sitting in your bank account!

Profit
Your profit is defined as the “surplus [income] remaining after total costs are deducted.”  You can measure your business success in part by a growing profit.  However, if you’re making a profit yet much of your profit is tied in accounts receivables, your business will struggle to operate and pay its bills on time!

You need the right timing and management of your cash flow in order to succeed financially.

Cash Flow & Profit Balance
With all of this information, it’s important to remember that cash flow and profit statements are not usually equal.  They tell different stories about your business’s financial health.  Both are important and both are different.

What to Do Next…

At ABJ Business Solutions, we’re invested in your success!  If you want to learn more about your business’s profit and cash flow, get in touch with us today and we’ll provide you with a free financial health check!