![]() ![]() The ‘profit or loss for the period ending’ is the usual heading on a ‘Profit and Loss Report’. Profit is looked at over a period of time and is usually backward looking. Cashflow, on the other hand, is the amount of available cash within a business at any given time as a result of the inflows and outflows. Profit (also known as net income) is the surplus after all expenses are deducted from the revenue. Crucial difference between profit and cashflow Conversely, when there is no profit being generated over the long-term, the original investment in the business is being eroded. You may spend money on expansion buying new equipment, or diversifying markets or geographies, hiring more staff, and so on. When you are profitable, you may have blinkers on and think in simplistic terms, for example, if I double what I’m doing now, I’ll make twice as much profit. ![]() ![]() Just because your business is making a profit doesn’t mean it has sufficient cashflow to sustain itself. One thing the many businesses, and especially new businesses and businesses that are growing fast, misunderstand is the difference between profit and cashflow. While the environment has changed, the underlying themes in this article are still applicable although the situation that your business in may be different now. A world where businesses were growing, starting, and some beginning to face some distress – a usual business environment. When I first sat down to write this article, we were living in a pre-COVID-19 world. ![]()
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