Profit vs Cash Flow: Why Both Matter

“I show a profit on my tax return, so why is my bank account empty?”

This is the most common question business owners ask. The answer lies in the difference between Profit and Cash Flow.

• Profit is Revenue minus Expenses. It is a theoretical number based on accounting rules. If you send an invoice for $5,000, you have “Profit” on paper, even if the client hasn’t paid you yet.

• Cash Flow is the actual money moving in and out of your bank account. If that client hasn’t paid, your Cash Flow is $0.

Why does this matter? A business can be profitable but still go bankrupt if it runs out of cash to pay bills. Managing both requires distinct strategies.

To ensure your cash flow stays positive, you need to stay on top of your invoices. We recommend reading What You Should Review Every Month in QuickBooks to keep a close eye on your Accounts Receivable.