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Cash And Profit Are Not The Same

    In any business, it is important that the differences between cash and profit are known – as they are not the same, which is a common misconception.

    Definition of profit; a financial gain, especially the difference between the amount earned and the amount spent in buying, operating, or producing a product for example.

    Definition of cash flow; the total amount of money being transferred in and out of a business, especially as affecting liquidity.

    As an established business owner or aspiring business owner, you need to understand both of these terms and how they interact with each other if you want to evaluate the financial health of your business.

    Both cash flow and profit are important in their individual ways. Profit is often described as one of the main indicators of a business’s success, whereas a healthy cash flow is essential to the running and maintaining of your business on a daily basis. 

    Not all monies paid into a business can be considered profit. A business must pay its operating costs from the money that comes into it. Once all costs have been deducted from all revenue, the amount that is left is the business’ profit.

    The main difference between cash flow and profit is while profit indicates the amount of money left over after all expenses have been paid, cash flow indicates the net flow of cash in and out of a business.

    Here are a couple of pieces of advice on how to help your business succeed;

    • Have a cash flow statement and keep it up to date.
    • Be realistic with profit expectations. 
    • Create a budget for your business outgoings and expenses and stick to it!

    A good way to predict a business’ growth is by looking at its projected cash flow – this is something that we can help you with.

    If you are unsure about the financial side of your business, then perhaps you should consider outsourcing this. This may seem counterintuitive regarding spending, however, by doing this you are minimising mistakes regarding your business’ finances. This will also give you more time to focus on other aspects of your business. See our blog Outsourcing Your Finance and Getting That Work Life Balance for more information on this.

    To run and operate a successful business, you need both adequate profit and cash flow. If you are looking for advice on this, or have any more questions then do not hesitate to get in touch with us! Here at MoulderAS we specialise in assisting small businesses and helping them grow.