Profit versus Cash Flow The Distinction All Business Owners Need to Know
                     B U S I N E S S  F I N A N C E   ·   C O A C H I N G
Profit versus Cash Flow: The 
Distinction All Business Owners 
Need to Know
D R .  A M E E T  PA R E K H
Business Coach & Strategist
T H E  S T A R T I N G  Q U E S T I O N
Profit alone doesn't tell
the full story
Profitable, yet cash-poor?
As business owners assess themselves, the first question is often about profit. It's 
essential to focus on profitability - but it doesn't necessarily reflect the full picture.
It happens more often than owners expect - 
strong profit on paper, but not enough real 
A company may earn enough profit and still have problems ensuring sufficient cash. 
cash on hand to run the business day to day.
Understanding the difference lets entrepreneurs take a more extensive view of their 
financial standing.
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T H E  T W O  N U M B E R S
Two different measures of a business
P R O F I T C A S H  F L O W
What's left after costs What's moving in and out
The residual amount after a business deducts its costs and The cash coming into and out of the business. Cash flow looks 
expenses from its revenues. It tells us how much the firm has at the real amount of cash the company has to run its 
made after all its expenses. operations.
Sales and profit may be recorded on paper, but the cash from 
A big gap between sales and expenses means a good profit margin - 
customers may not have arrived yet - it can be trapped in stock or 
but that alone doesn't guarantee enough cash flow.
unpaid bills.
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T H E  P A R A D O X
How a successful business
can still lack cash flow
Picture a business with numerous credit sales. Those sales boost the profit margin - but non-payment of invoices by clients can leave the firm 
short on liquidity.
Large debtor balances High inventory levels Unmanaged cash shortages
Left unchecked, a cash shortage can put the 
Unpaid invoices mean the cash from a sale Cash gets trapped sitting on the shelf instead of 
business in real trouble - despite healthy profit 
hasn't actually reached the business yet. circulating back through the business.
margins.
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T H E  B A L A N C E
Why a business needs
both profit and cash flow
Profit sustains the financial stability of a business. Cash flow helps it meet 
immediate needs. Neglecting either one can cause real problems. Two sides of one coin
Lower the cash gap - shorten the time between spending cash and collecting it from 
customers. Profit indicates the balance sheet after expenses. 
Cash flow is the real flow of money in and out. 
Deal with payments in arrears - chase overdue invoices before they become a Both are required for an organization to survive.
liquidity problem.
Avoid excess cash tied up in stock - don't let cash sit idle on the shelf when it could 
be working.
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K E Y  T A K E A W A Y
Profitability alone
cannot ensure cash flow
Paying attention to profitability as well as cash flow helps entrepreneurs build a solid 
financial structure to grow their business.
Profit Cash Flow both required for survival
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T A K E  C H A R G E  O F  Y O U R  F I N A N C E S
Get the full picture of
your business's health
Gain insight into the financial problems your business faces, along with the ways to overcome 
them for growth, with the business coaching and consulting services of Dr. Ameet Parekh.
TA K E  C H A R G E  TO DAY
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