When small business owners get their monthly financial statements, their eyes quickly focus on the bottom line of the income statement.
If profit is good, their gaze gradually moves to cash in the bank or the cash account on the balance sheet, where they may be surprised to see that cash didn’t grow as much as they thought it should.
The owner then asks the question, “How can I have made a profit but have so little cash?”
The situation where profit and cash flow are at odds is very common for a small business which must invest in assets in order to grow. The reasons can always be seen on the balance sheet.
To understand where your cash has gone, you must first understand the relationship between profit and cash flow, and how each is calculated.
Keep Reading Why Profits Don’t Equal Cash Flow on GrowthForce