Don’t Confuse Profit With Cash Flow.
Many business owners proudly say, “We made a profit this year!” But when it comes to paying suppliers or salaries, they struggle. Why? Because profit is not cash.
Cash ≠ Profit
1) Profit is Accounting-based
Profit includes sales on credit, depreciation, and non-cash adjustments.
It looks good on paper, but may not accurately reflect the actual amount in the bank.
2) Cash is survival-based
Cash pays suppliers, employees, and bills
Without cash, even profitable companies can collapse
3) The gap between the two
Credit sales inflate profit, but delay cash inflows
Large inventory ties up cash even when profits look healthy
Loan repayments drain cash, but don't reduce profits
Example
Imagine your SME made ₹10 lakh in “profit.”
- ₹6 lakh of sales were on credit (customers haven’t paid yet).
- ₹3 lakh is stuck in unsold inventory.
- You still owe ₹2 lakh in loan repayment this month.
👉 On paper: Profit = ₹10 lakh 👉 In reality: Available Cash = only ₹1 lakh
Key Takeaways
- Profit shows performance. Cash shows survival.
- Always monitor your cash flow statement in conjunction with your profit.
- Strong businesses grow both profit and cash.