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Difference between cash flow and profit


You might think that cash flow and profit are the same terms that can be used interchangeably. They are indeed the key aspects of a business but they represent two different financial parameters. Business can have a positive cash flow but no profit or it can have large profit but negative cash flow. How is this possible?

Cash flow is exactly what the name says, the way cash flow trough business,its inflow and outflow. Companies use it to meet current and near-term obligations. If company has a negative cash flow in the worst case scenario it can lead it bankruptcy. Positive cash flow means that business can always pay suppliers, meet payroll, purchase inventory, pay taxes and other expenses. Conserving a cash flow is one of the most important features of a good business. It takes time and planning, sometimes even professional assistance.

Profit, also called net income is a difference between gross income and expenses. When you subtract your expenditures from your sales and revenues is profit. Of course we all know that business can not survive for a long time if it is not making profit. Profit looks at income and expenses at a certain point in time and it is the basis at which tax is calculated.

Sometimes in business have good cash flow but poor profit. It can happen for various reasons. If you have successful product it can raise your costs, for example because of higher demand for your product you will have to hire more people to meet the demand and that will significantly affect your profitability. it is important for you to fully understand all costs of your business so you can respond accordingly. It can mean that you will need to reduce production costs in order to restore profitability. It can also mean that cash comes not from sales but from other sources.

Large profit but negative cash flow usually comes from poor cash flow management. Money can be spent for personal matters or on an business investment so you cannot meet your financial obligations in a timely manner. Most often that happen because the gap between accounts payable and accounts receivable is to wide. Many wholesale customers hold invoices up to 120 days before payment but your suppliers often demand to be paid upon the delivery. It is no wonder businesses find themselves in cash shortage problems. Besides doing a credit check o your customers there is one more thing you can do to avoid this problem -invoice factoring.

With Emry Capital you can turn your unpaid invoices to cash. We can give you a credit line up to $5 million depending how strong are  your customers. Our rates are as low as 0,25% per week and you will know exactly what are you paying with our transparent fees. Unlike a traditional loan there are no recurring payments when your customer pays by the invoice due date. You can apply online and you can get approval as fast as 24 hours!
















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