You’ve just reviewed your profit & loss statement. It says your business made $8,000 in profit last month.

So why does your bank account feel like it’s gasping for air?

Welcome to the difference between profit and cash flow: one of the most misunderstood (and dangerous) concepts in small business finance.

If you’ve ever wondered why your books say you’re “profitable” but your wallet says otherwise, this blog is for you. Let’s break it down - no jargon, just real talk, and show you why knowing the difference can save your business.

💸 What Is Profit?

Profit is what’s left over after your business pays its expenses.

On a basic level:

Revenue – Expenses = Profit

Your profit appears on your Profit & Loss Statement (P&L) and is based on what you’ve earned and spent, whether or not the cash has actually moved.

💡 Example: You send a $2,000 invoice to a client this month. That counts as revenue, even if they haven’t paid it yet.

💵 What Is Cash Flow?

Cash flow is the movement of actual money in and out of your bank account. It shows how much cash you have on hand to spend, save, or reinvest.

Cash flow is tracked on your Cash Flow Statement and tells you:

When money is received from clients
When money is paid out to suppliers, staff, rent, or tools

💡 You can be profitable on paper, but if your cash flow is negative: you can’t pay your bills, make payroll, or grow.

📊 Profit vs. Cash Flow: What’s the Real Difference?

💬 Think of it this way: Profit is a theory, cash is reality.

🚨 Why This Difference Matters to Small Businesses

1. You Can Be Profitable and Still Go Broke

A business can show $50,000 in profit - but if that money hasn’t actually arrived yet, and you can’t pay rent, you’re in trouble.

This is especially common when:

Clients pay invoices late
You’ve made big upfront investments (like inventory or equipment)
You’re growing quickly but not collecting fast enough

2. Cash Flow Problems Kill More Businesses Than Profitability Issues

It’s estimated that 82% of small business failures are due to poor cash flow management, not lack of profit.

💡 A business that consistently runs out of cash is at risk, even if it's profitable on paper.

3. Lenders & Investors Care More About Cash

Profit looks good in reports, but lenders want to see how much cash you have to repay loans. A strong cash flow history is key if you want to grow using funding.

🧠 What Causes the Gap Between Profit and Cash?

Here are some common culprits:

Late-paying clients
High accounts receivable (money owed to you)
Inventory purchases that don’t count as “expenses” yet
Loan repayments that don’t appear on your P&L
Owner draws or dividends that affect cash but not profit

💡 This is why both statements (P&L + Cash Flow) matter. One tells the story, the other tells the timing of that story.

✅ How to Stay on Top of Profit and Cash Flow

Here are some quick tips to manage both like a pro:

1. Review Both Reports Monthly

Don’t rely on just your P&L. Ask your bookkeeper for a cash flow report too.

2. Use Cloud Accounting Tools

QuickBooks Online and Xero let you generate real-time profit and cash flow insights.

3. Get Paid Faster

Set payment terms that work for you (net-7 or net-15)
Use invoicing tools with payment links
Send automated reminders

4. Create a Cash Buffer

Set aside at least one month of operating expenses so you’re not stressed when payments are late or unexpected costs pop up.

5. Work with a Bookkeeper Who Explains the Numbers

At Breakspears Bookkeeping Services LLC, we don’t just send your reports: we walk you through them so you actually know what’s going on in your business.

💬 Final Thoughts: Know Your Numbers, Protect Your Business

Understanding the difference between profit and cash flow isn’t just a nice-to-have, it’s essential if you want to keep your business healthy and stress-free.

Profit shows how well your business performs.
Cash flow shows whether it can survive.

And the businesses that know both? They’re the ones that grow sustainably and confidently.

📌 Want to Know If Your Business Is Really Healthy?

At Breakspears Bookkeeping Services LLC, we help you:
✅ Track profit and cash flow side by side
✅ Get paid faster
✅ Build financial systems that support growth

👉 Explore our flat-rate bookkeeping packages
👉 Book a free discovery call to take control of your numbers—without the overwhelm.

Profit Isn’t Cash: Here’s Why That Matters