[et_pb_section fb_built=”1″ custom_padding_last_edited=”on|phone” _builder_version=”4.23″ custom_padding_tablet=”” custom_padding_phone=”0px||||false|false” da_disable_devices=”off|off|off” locked=”off” global_colors_info=”{}” da_is_popup=”off” da_exit_intent=”off” da_has_close=”on” da_alt_close=”off” da_dark_close=”off” da_not_modal=”on” da_is_singular=”off” da_with_loader=”off” da_has_shadow=”on”][et_pb_row column_structure=”1_3,2_3″ _builder_version=”4.23″ background_size=”initial” background_position=”top_left” background_repeat=”repeat” width=”100%” custom_padding=”||0px||false|false” global_colors_info=”{}”][et_pb_column type=”1_3″ module_class=”table-contents” _builder_version=”4.23″ background_color=”#f3f2f6″ custom_padding=”25px||25px||true|false” sticky_position=”top” sticky_limit_bottom=”section” sticky_position_tablet=”top” sticky_position_phone=”none” sticky_position_last_edited=”on|desktop” border_radii=”on|24px|24px|24px|24px” global_colors_info=”{}” custom_padding__hover=”|||”][et_pb_text _builder_version=”4.23″ text_font=”||||||||” global_colors_info=”{}” background__hover_enabled=”on|desktop”][\/et_pb_text][\/et_pb_column][et_pb_column type=”2_3″ _builder_version=”4.16″ custom_padding=”|||” global_colors_info=”{}” custom_padding__hover=”|||”][et_pb_text admin_label=”Intro” _builder_version=”4.27.6″ header_2_font_size=”32px” header_2_font_size_tablet=”30px” header_2_font_size_phone=”26px” header_2_font_size_last_edited=”on|tablet” global_colors_info=”{}”]<\/p>\n
We understand that for a time-strapped small business owner, it\u2019s very easy to mix up cash flow and profit, especially when your bank account is struggling, but your accountant says you\u2019ve made a net profit. While it\u2019s true they are somewhat related, they each measure very different things about your business\u2019s financial health.<\/p>\n
Most profit numbers come from your income statement \u2014 also called a profit and loss statement, or just a loss statement \u2014 which shows your business\u2019s revenue and costs over a set period (a month, quarter or year).<\/p>\n
At the top, you\u2019ll see gross revenue (or net sales\/net revenue), which is the total sales revenue and other income generated, like rental income or interest income, before costs. You\u2019ll also see the cost of goods sold (COGS)<\/a> \u2014 the exact cost of items or services you sell, like materials, stock purchases, freight, etc. \u2014 your \u2018goods sold\u2019.<\/p>\n Revenue minus the cost of goods sold gives you your gross profit. Then you subtract operating expenses and other operational costs \u2013 things like wages, rent, marketing, utilities and software. What\u2019s left after all these costs are accounted for is:<\/p>\n This is where profit analysis happens. You look at your net profit margin and overall financial performance to see if you\u2019ve got a profitable business with a sustainable business model.<\/p>\n [\/et_pb_text][et_pb_image src=”https:\/\/www.reckon.com\/au\/wp-content\/uploads\/2026\/01\/Cash-flow-applications.png” alt=”Different cash flow applications, operating, investing, and financing ” title_text=”Cash Flow Applications” align=”center” _builder_version=”4.27.5″ _module_preset=”default” global_colors_info=”{}”][\/et_pb_image][et_pb_text _builder_version=”4.27.5″ _module_preset=”default” global_colors_info=”{}”]<\/p>\n While profit looks at performance, cash flow looks at money flowing into and out of your business on a day-to-day basis.<\/p>\n Your cash flow statement (another useful financial statement, alongside the balance sheet) is all about cash inflows and cash outflows, as well as the cash balance at the end. It\u2019s usually split into three cash flow types:<\/p>\n The cash flow statement shows how much cash is generated (or used) in each area and your net cash flow \u2013 the net flow of cash for the period. Good cash flow management and cash flow analysis here tell you whether you have enough money to meet all your financial obligations, pay employees, keep the ATO happy, pay suppliers and lenders, and more.<\/p>\n Because cash flow only records cash transactions, it adjusts for changes in accounts receivable<\/a> (money owed to you) and accounts payable. It also strips out non-cash items like depreciation and zeroes in on cash receipts, cash payments, and cash equivalents.<\/p>\n In short, cash flow shows how much cash truly moved through your business\u2019s cash accounts, not just how much you earned on paper.<\/p>\n Positive cash flow means your cash inflows are higher than your cash outflows right now. Positive cash flow happens when more money is coming in than going out, so you can easily take care of bills, cover operating expenses, meet any other financial obligations and plan for future business growth with greater confidence.<\/p>\n Negative cash flow means the reverse. In other words, you\u2019re spending more cash than you\u2019re bringing in right now. That\u2019s not always a bad thing \u2014 you might be investing heavily in growth or one-off capital expenditures. However, if you have ongoing cash flow issues, then that\u2019s a big red flag for your business’s overall financial health. It might even hint at big financial challenges in your future.<\/p>\n So what\u2019s the real difference between cash flow and profit?<\/p>\n Profit comes from the P&L and breaks down your financial performance over a defined period \u2013 how much leftover capital you get after sales revenue, costs and operating expenses. Cash flow<\/a>, on the other hand, comes from the cash flow statement and looks at all the money moving in and out of your business \u2014 in other words, it shows your ability to stay solvent on a daily basis.<\/p>\n That\u2019s the biggest difference in the cash flow vs profit conversation: one is about performance, while the other is about survival.<\/p>\n From a numbers perspective, profit is reported using accrual accounting methods, which can include actual revenue received and money owed (like accounts receivable). Whereas cash flow uses actual cash received and cash paid.<\/p>\n Both are very useful financial metrics, and together they\u2019re the two most important metrics lenders and investors look at first when judging a business’s financial health.<\/p>\n For most small businesses, the following three reports will give you the complete picture:<\/p>\n Looking at all three gives you a more detailed overview of your financial health than any single report can.<\/p>\n In the end, profit tells you how much profit your business makes over a period, while cash flow tells you whether you\u2019ve got the cash to keep your doors open. A business can be losing money on paper and still survive for a while if it has cash reserves, or show profit and still go under because the cash never arrives.<\/p>\n As a business owner, it\u2019s your job to keep an eye on both profit and cash. Use profit to judge whether your business operations are viable and use cash flow to make sure there\u2019s enough money to meet your financial requirements. When you treat them as partners instead of enemies, you\u2019ll be in a much better position to grow a business that\u2019s financially robust for the long haul.<\/p>\n [\/et_pb_text][ba_social_share icon_bg=”#03002e” icon_padding=”10px|12px|10px|12px|true|true” layout=”classic” show_text=”off” btn_padding=”0px|0px|0px|0px|false|false” btn_bg_color=”RGBA(255,255,255,0)” _builder_version=”4.23″ _module_preset=”default” custom_margin=”50px||||false|false” custom_padding=”25px||||false|false” custom_css_before=” content: %22SHARE THIS%22;|| font-size: 16px;|| font-weight: 700;|| line-height: 22px;|| letter-spacing: 0em;|| text-align: center;|| color: #ff5447;|| margin-bottom: 10px;|| display: inline-flex;|| position: absolute;|| margin-top: 10px;” border_width_top_main=”1px” border_color_top_main=”#e4e4e4″ border_radii_icon=”on|5px|5px|5px|5px” global_colors_info=”{}” custom_css_before_last_edited=”off|desktop”][ba_social_share_child _builder_version=”4.23″ _module_preset=”default” global_colors_info=”{}”][\/ba_social_share_child][ba_social_share_child network_type=”facebook” _builder_version=”4.23″ _module_preset=”default” global_colors_info=”{}”][\/ba_social_share_child][ba_social_share_child network_type=”linkedin” _builder_version=”4.23″ _module_preset=”default” global_colors_info=”{}”][\/ba_social_share_child][ba_social_share_child network_type=”email” _builder_version=”4.23″ _module_preset=”default” global_colors_info=”{}”][\/ba_social_share_child][\/ba_social_share][\/et_pb_column][\/et_pb_row][\/et_pb_section]<\/p>\n","protected":false},"excerpt":{"rendered":" Learn the difference between cash flow and profit and how to effectively manage both to strengthen your business\u2019s financial health.<\/p>\n","protected":false},"author":35,"featured_media":300215,"menu_order":0,"template":"","format":"standard","meta":{"_et_pb_use_builder":"on","_et_pb_old_content":"","_et_gb_content_width":"","inline_featured_image":false,"_lmt_disableupdate":"no","_lmt_disable":"","footnotes":""},"sbh_category":[395],"class_list":["post-300183","sbh","type-sbh","status-publish","format-standard","has-post-thumbnail","hentry","sbh_category-cash-flow"],"yoast_head":"\n\n
What cash flow really measures<\/h2>\n
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Positive vs negative cash flow<\/h2>\n
Main differences between cash flow and profit<\/h2>\n
How both profit and cash flow show up in your reports<\/h2>\n
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Making them both work for you<\/h2>\n