Profit tells you whether a business makes money over a period. Cash flow tells you whether it has money in the bank when bills are due. The two can look very different — and running out of cash is one of the most common reasons small businesses struggle.
Profit vs. cash flow
Imagine you complete a large project in March but the client pays in June. Your accounts show profit in March, yet you still need to pay rent, wages and suppliers in April and May. That gap is a cash flow problem.
The three parts of cash flow
- Operating: cash from day-to-day sales and expenses.
- Investing: buying or selling equipment and other long-term assets.
- Financing: loans, repayments and owner investment.
Practical ways to improve cash flow
- Invoice promptly and state clear payment terms.
- Offer easy payment methods and consider deposits for large jobs.
- Follow up on overdue invoices consistently.
- Negotiate supplier terms that match when you get paid.
- Keep a simple 13-week cash forecast and update it weekly.
Build a buffer
Aim to keep a cash reserve that covers several months of fixed costs, so a late payment doesn’t become a crisis.
For decisions about financing or tax, speak with a qualified accountant who understands your local rules.
