A company can be profitable and still go broke. Understanding why comes down to the difference between profit and cash flow — two numbers that often move in opposite directions.
Profit is an opinion. Cash is a fact.
Profit is what’s left after expenses on your income statement. But that statement records revenue when it’s earned, not when it’s collected. Send a $20,000 invoice and profit looks great — even if the client won’t pay for 60 days and rent is due tomorrow.
Where the gap comes from
- Receivables: money owed to you that hasn’t arrived.
- Inventory: cash converted into stock on a shelf.
- Loan principal: repayments reduce cash but aren’t an expense.
- Owner draws: money out that profit doesn’t capture.
Profit tells you if the business model works. Cash flow tells you if the business survives the month.
A simple way to stay ahead
Build a rolling 13-week cash-flow forecast: money in and out, week by week. It turns nasty surprises into decisions made weeks in advance.
Habits that protect cash
- Invoice immediately and shorten payment terms.
- Follow up on overdue invoices on a fixed schedule.
- Keep a buffer of one to two months of operating costs.
Where FZN Digital fits: we produce clear monthly statements and cash-flow tracking, so you see both pictures before either becomes a problem.