Cash is not profit and vice versa

Anna Stubbs • March 13, 2023

The purpose of a business is to make money, and that means you need to know the difference between profit and cash flow.

 

Net profit is what you have left after you deduct all your business expenses from all your revenue. You can improve net profit only by changing the things that affect revenue and expenses.

 

For example, if:

 

  • You renegotiate with your suppliers, you may get stock cheaper, or carry less inventory
  • Your staff engage with customers better, you can learn more about what they do and don’t like – and get more business
  • You can roster staff differently, you may be able to run your business more efficiently.

Cash flow comes from various sources. However, it also covers operating expenses, taxes, equipment purchases, repayments, distribution, and so on.

 

Note that a profitable business does not always have good cash flow. And a business with good cash flow is not always profitable. For example, you can have good cash flow, and loss-making expenses.

 

To work out how fast you can grow your business, look at your projected cash flow. We can advise you on this.

Keeping cash crowned as King

Your business can’t survive without cash.

The following six takeaways are essential for business success:

 

  1. Protect your cash position, by knowing what it is. Build a cash flow statement and always keep it up-to-date. If you foresee a shortfall, start at once to fix it.
  2. Create a cash buffer as an insurance against unexpected difficulties.
  3. Protect your cash position against revenue shocks, by maintaining a balance equivalent to at least two months of operating expenses.
  4. Be realistic with revenue expectations. Take action now if it looks like sales are not going to get you to breakeven.
  5. Credit checking up front will reduce the risk of customer non-payment. Make sure you follow up with clear payment terms agreed in writing. Communicate regularly with customers and automate where possible.
  6. Every pound you spend reduces cash reserves.


The best way to protect your cash is to create a budget for the spend you know you need, and stick to it.

Looking to improve cash flow? Make a time to talk to us. We're here to help.

Business credit: using loans to grow your business

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5 ways to get in control of your business finances

By Anna Stubbs • August 21, 2025
Having proper control of your business finances is a big advantage. It helps you make well-informed business decisions and keeps your organisation profitable. With so many digital tools for managing your bookkeeping, accounting and management reporting, it's never been easier to manage, track and forecast your financial position. But what are the main tools you need? And how do you set up your financial systems, apps, processes and reporting to put yourself back in the finance driving seat?

Protecting you and your business: using trusts

By Anna Stubbs • August 21, 2025
Have you ever wondered about the best ways to protect you and your business? In this series, we’ll look at the key ways to use trusts, insurance and risk-management techniques to protect both your personal assets and the future of the company. In this article, we’ll look at how you can use a trust to shelter your assets.