Profit vs. Cash: The Difference That Sinks Businesses
Why a company can post record profits and still miss payroll. The single most important idea in this whole library.
The gap between the two
The Income Statement counts revenue when it’s earned, not when the money arrives. Accountants call this accrual accounting: recording things when they happen, not when cash moves.
Sell $10,000 of catering on a 60-day invoice and your statement says “profit!” today, while your bank account says nothing for two months. That gap is the whole reason the Cash Flow Statement exists.
The profitable business that went broke
Imagine a bakery lands a huge catering contract: $30,000 of orders, payable in 90 days. The Income Statement looks incredible. Record profit! But the ingredients and the bakers must be paid now, while the cash arrives in three months.
If there isn’t enough cash in the tank to bridge that gap, the bakery can miss rent while being the most profitable it has ever been. Growth consumes cash before it returns cash, so the faster you grow, the more this matters.
The habit that protects you
The fastest way to make this stick is to build one and watch the numbers move.
Open the builder