⚠ Sponsored links. We may earn a commission at no cost to you.
Frequently Asked Questions
What is cash flow and why is it different from profit? ▾
Profit is revenue minus expenses on paper. Cash flow is the actual money moving in and out of your bank account. A business can be profitable but cash flow negative — for example, if customers pay on net-60 terms but you pay suppliers immediately, you may be profitable but consistently short on cash. This is why profitable businesses go bankrupt: running out of cash. Managing cash flow timing is one of the most critical skills in small business.
How do I improve business cash flow? ▾
Key levers: Invoice immediately (don't delay), offer early payment discounts to customers, negotiate longer payment terms with suppliers, use net-30 or net-15 terms rather than net-60, collect deposits upfront for large projects, maintain a revolving line of credit for gaps, time large expenses to follow revenue peaks, and build 3-6 months of expenses as a cash reserve. Also: cut slow-paying clients or require prepayment.
What is a cash flow statement vs income statement? ▾
An income statement (P&L) shows revenue, expenses, and profit over a period — it includes non-cash items like depreciation and accruals. A cash flow statement shows actual cash movements and adjusts for non-cash items, timing differences, and capital expenditures. For small businesses, the cash flow statement is often more important operationally — it tells you whether you can make payroll, not just whether you made a profit.