Question: Are a Firm's Cash Flow and Profit Different?
Answer:
Yes, cash flow and profit are different. Cash flow is the money that flows in and out of the firm from operations, financing activities, and investing activities. Profit, also called net income, is what remains from sales revenue after all the firm's expenses are subtracted.
Cash flow is actually more important for the small business owner to focus on than profit. Companies can make a profit but still have a negative cash flow and not be able to pay their bills. Not recognizing this difference is one of the biggest mistakes a small business owner can make. Small business owners need to prepare monthly cash budgets in order to make sure they know their cash flow positions.
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