You can be profitable on paper and broke in the bank account. Here's why - and how to make sure it doesn't happen to you.
Profit is what's left after expenses on your P&L. It's a calculation. Cash is what's in your bank account. It's a fact. Those two numbers almost never match in real time.
Common reasons profit and cash diverge: customers haven't paid yet (A/R), you've paid vendors in advance (prepaids), you've bought equipment (capitalized, not expensed), you've paid down debt principal (not on the P&L), or you've taken owner draws.
Healthy businesses watch profit and cash. Profit tells you whether the business model works. Cash tells you whether you can keep operating it.
If anything in this article hit close to home, schedule a free 30-minute consultation. We'll talk through your situation and the right path forward.