Profit vs. Cash Flow: Same Business, Two Very Different Stories
Profit appears on the P&L. Cash flow lives in your checking account. These two can tell completely different stories about the same company.
Profit answers: “Did we earn more than we spent (on paper)?”
Cash flow answers: “Do we have money today to cover payroll, rent, vendors, and taxes?”
A cash flow statement exposes the truth that a P&L often hides: timing. You can book revenue today and collect it 45 days from now. Your expenses, meanwhile, have zero interest in your invoicing schedule.
💡 Pro Tip: For a clear explanation of the difference, see Harvard’s breakdown of cash flow vs. profit.
The Liquidity Trap: AR, AP, and the Timing Gap That Breaks “Profitable” Companies
Most “we’re profitable but broke” businesses are stuck in a simple math problem:
Accounts receivable (AR): money customers owe you
Accounts payable (AP): money you owe vendors
Payroll/rent/taxes: money that leaves on a fixed schedule
When AR grows faster than cash, your balance sheet may look fine, but liquidity gets squeezed. Owners feel it as stress, not as a line item:
This is where business loan financing becomes relevant—not because the business is failing, but because timing is off.
💡 Pro Tip: If you “sell on terms,” you’re also in the cash-flow business. Whether you like it or not.
Why Growth Often Makes Cash Flow Worse Before It Gets Better
Growth is great—until it isn’t.
Growing businesses usually spend cash before the revenue arrives:
Even if margins are healthy, growth can widen the cash gap. This is why scaling companies often start looking at business financing options reactively: not because demand is weak, but because the cash conversion cycle is punishing.
If you model these timing gaps in advance using a cash flow or funding calculator, the risk becomes visible long before it becomes painful.
💡 Pro Tip: Growth is not just a sales problem. It’s a balance sheet and cash conversion cycle problem.
