📄ONE-PAGE LESSON 5
Key Points You’ll Learn
💵 Understand why profit on paper doesn’t always mean money in the bank
🔍 Learn how timing differences create cash shortages even in profitable companies
✅ Apply strategies to manage both profit and cash effectively
Why This Matters
Many business owners believe that if their company is profitable, they are financially safe.
The truth is, profit and cash flow are not the same thing. Profit is an accounting result, while cash is what actually pays your bills, staff, and suppliers. Countless businesses have failed even while showing profits, simply because they ran out of cash.
Knowing the difference protects your business from surprises.
Core Insights
- Profit Defined – Profit is revenue minus expenses, measured over a period. It shows whether your business is creating value, but not whether you can pay today’s bills.
- Cash Defined – Cash flow measures the movement of money in and out of your accounts. It reflects liquidity — your ability to act now.
- The Timing Gap – Profit can show sales made today, but cash might not arrive for 30–90 days (e.g., unpaid invoices). Likewise, you may record an expense but delay paying it.
- Profit Without Cash – Common traps include growing sales too quickly without collecting payments, building large inventories, or relying too heavily on credit sales.
- Cash Without Profit – A business may show positive cash flow temporarily (e.g., from loans or asset sales) but still be unprofitable long term.
Quick Exercise
1) Pull your last Income Statement (profit) and Cash Flow Statement (cash).
2) Compare: Was your business profitable? Did you also generate positive operating cash flow?
3) If profit was positive but cash was negative, ask: Where is the cash stuck? (Receivables? Inventory? Early loan payments?)
4) Choose one step to close the gap (tighten collections, reduce excess inventory, or align expenses with inflows).
Call to Action
Profit is important, but cash is survival. The companies that succeed long-term manage both — creating value while keeping liquidity strong.
Face it. Know the difference. Protect your business.