Profit vs. Cash Flow: What Every Small Business Owner Should Know
Your Business Shows a Profit, So Where’s the Cash?
Have you ever looked at your Profit & Loss statement after a strong month and thought, “Why doesn’t that money show up in my bank account?” You’re not alone.
Here’s the key truth: Profit does not equal cash flow.
Many small business owners assume that if they’re showing a profit, everything must be fine. But without tracking cash flow, that assumption can lead to tight accounts, missed payments, and stalled growth.
🧮 Let’s Break It Down:
1. Profit (Net Income)
This comes from your Profit & Loss report:
Revenue – Expenses = Profit
📌 But here’s what matters:
▪️If you use accrual accounting, income and expenses are recorded when earned, not when cash changes hands.
▪️Non-cash expenses, like depreciation, reduce profit but don’t affect your actual bank balance.
2. Cash Flow
This tracks real money in and money out of your business accounts.
Even with a solid profit, cash flow might be low if:
▪️Payments from customers are still pending
▪️You made large inventory or equipment purchases
▪️You’re making loan or tax payments that don’t appear on your P&L
3. Which One Matters More?
Both!
▪️Profit helps measure performance and tax obligations.
▪️Cash flow reflects your business’s financial health and ability to operate day to day.
📊 Ready to Make Sense of Your Numbers?
If you're unsure where your money is going or how to manage your cash flow more effectively, MJ Webb Bookkeeping is here to help. We work with small business owners to simplify financial systems, improve cash flow, and support smarter decision-making.
📞 Contact MJ Webb Bookkeeping today for expert support tailored to your business needs.