Cash flow and profit are not the same thing. A business can be profitable on paper and still be unable to make payroll. This happens when revenue is earned but not yet collected, when large payments are due before income arrives, or when growth requires spending ahead of the money that spending will generate.
Positive vs. negative cash flow
Positive cash flow means more money is coming in than going out. Negative cash flow means the opposite. Short periods of negative cash flow are normal. Sustained negative cash flow without a clear turnaround is a serious problem that needs addressing before it becomes a crisis.
The Four Forces of Cash Flow
Greg Crabtree's Simple Numbers framework organizes cash deployment into four priorities: taxes, debt elimination, core capital, and distributions. Most small business owners skip to distributions before funding the first three — which is why so many feel cash-strapped even when revenue is growing.
Cash flow vs. profit
Profit is what's left after subtracting expenses from revenue. Cash flow is what's actually in your bank account. Watching both is the only way to stay ahead of problems.
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