It's one of the most confusing realities of running a business: your P&L says you're profitable, but there's barely enough in the bank to cover this week's expenses.
Profit Is an Opinion, Cash Is a Fact
Profit includes revenue you've earned but haven't necessarily collected yet, and expenses you've incurred but haven't necessarily paid yet. Cash flow only cares about money that has actually moved.
Common Culprits
- Slow-paying customers tying up receivables
- Large upfront inventory or equipment purchases
- Loan principal payments, which don't show up as an expense on the P&L
- Rapid growth that requires spending ahead of collections
What to Track Instead
A simple cash flow forecast, updated monthly, gives you visibility weeks before a shortfall becomes an emergency.
Profit tells you whether the business model works. Cash flow tells you whether you'll still be open next month. You need to watch both.