Why Your Profit Doesn’t Match Your Bank Account
Illustration comparing profit and cash flow, with profit shown as charts and reports, and cash shown as stacked dollar bills. Text reads: “Profit vs Cash: What’s the difference?” and www.pilotmg.com.
A lot of small business owners breathe a sigh of relief when they see their business is turning a profit. But then they check their bank account and feel confused—or even panicked—when the cash just isn’t there.
If that sounds familiar, you're not alone. One of the most common misunderstandings I see is mixing up profit and cash flow. The two are closely related but definitely not the same—and if you don’t understand the difference, it can lead to serious problems.
Let’s break it down.
What is Profit?
Profit is what’s left after you subtract your business expenses from your revenue. It's what shows up on your income statement (also called a profit and loss statement or P&L). Accountants usually talk about three types of profit:
Gross Profit – Revenue minus the direct costs of delivering your product or service (called cost of goods sold or COGS).
Operating Profit – Gross profit minus your operating expenses, like rent, software, and salaries.
Net Profit – The bottom line. It’s what’s left after all expenses, including taxes and interest, have been taken out.
When people say “we made a profit,” they’re usually talking about net profit. It’s a helpful metric for evaluating the financial performance of your business, especially over time.
But here’s the catch: profit is not cash.
What is Cash Flow?
Cash flow is all about timing. It tracks the actual money coming into and going out of your business bank account. Unlike profit, which is recorded when revenue is earned and expenses are incurred (based on accrual accounting), cash flow tracks real dollars moving in and out.
There are three types of cash flow:
Operating cash flow – Cash generated from day-to-day operations.
Investing cash flow – Cash used for big investments like equipment or long-term assets.
Financing cash flow – Cash related to loans, repayments, or owner investments/distributions.
For most small businesses, the biggest concern is operating cash flow, because that’s what keeps the lights on.
Profit ≠ Cash: A Common Example
Let’s say you invoice a client for $10,000 in March, and you book that as income. On paper, you’ve made a profit—especially if your expenses that month were $7,000.
But what if that client doesn’t actually pay you until May?
Your profit shows up in March, but the cash doesn't hit your account until May. In the meantime, you might still have to make payroll, pay rent, or cover other expenses.
So even though you’re technically profitable in March, you’re cash poor until that invoice gets paid.
Why This Matters
Understanding the difference between profit and cash flow can help you:
Avoid financial surprises – Just because you made a profit doesn't mean you can afford to expand or take on more expenses.
Improve decision-making – Knowing your cash position helps you decide when to hire, when to invest, or when to hold back.
Prevent burnout – Constantly wondering where your money went—even when business seems to be going well—can be emotionally exhausting.
Warning Signs of a Cash Flow Problem
Even profitable businesses can run into cash flow issues. Here are a few red flags to watch for:
You’re always behind on paying bills, even though your sales are strong.
You have to dip into your personal funds to cover business expenses.
You rely heavily on credit cards or short-term loans to stay afloat.
Clients or customers are consistently slow to pay their invoices.
If any of these sound familiar, it might be time to take a closer look at your cash flow management, even if your income statement says you’re doing fine.
How to Get a Better Handle on Cash Flow
Here are a few ways to manage your cash more effectively:
Track your accounts receivable – Stay on top of unpaid invoices and follow up regularly.
Forecast cash flow – Look ahead at upcoming income and expenses to spot gaps before they happen.
Build a cushion – Aim to keep at least one month of expenses in reserve if you can.
Work with a bookkeeper or accountant – If this stuff makes your head spin, having someone on your side can make a huge difference.
Final Thoughts
Profit is important—but it’s not the whole picture. Cash flow is what keeps your business running on a day-to-day basis. The more you understand the difference between the two, the better equipped you’ll be to make smart decisions and build something sustainable.
Need help figuring out where your cash is going or what your financial statements are really saying? That’s what I’m here for. Reach out anytime—this is exactly the kind of work I love to do.
Let’s Make the Numbers Make Sense
You deserve to feel confident in your finances. And sometimes that starts by asking:
“Where’s the money actually going?” If your profit and cash don’t seem to line up, I’d be happy to walk through the numbers with you. No pressure—just support.
Ready for a clearer view of your finances?
Schedule a free consultation and let’s take a look together.