Profit Doesn’t Equal Cash in the Bank

•       Profit tells you whether your business is viable.

•       Cash flow tells you whether it can survive.

Profit is calculated using accounting rules — income earned and expenses incurred.

Cash flow, on the other hand, tracks actual money moving in and out of your bank account.

Common reasons profit and cash flow differ include:

• Customer payment delays

• Depreciation

• Amortization

• Loan repayments (which don’t appear on the profit report)

• Tax paid after the profit is earned

Add in surprise expenses, whether it be from unanticipated repairs, new tariffs, having to bring in a contractor to fill in for an ill employee, the list goes on and on.  This is why many successful businesses still experience stress around cash flow. At minimum, a cash flow forecast bridges the gap by translating profit into real-world timing.  A better forecast allows you to explore various alternative scenarios.

A simple forecasting workbook helps you focus on what matters most: your future bank balance, not just past results.  Gaining this visibility allows you to plan.  Think of exploring scenarios and planning how to react as an athlete’s training.   The actual event that occurs may not be what you planned for, but the mindset around options to consider develops the resilience to adapt and address whatever challenges do come your way.

Remember the adage: To Be Forewarned Is To Be Forearmed.