Imagine this: You've built a thriving business, your sales are climbing, and on paper, you're incredibly profitable.
But then, reality hits.
Payroll day arrives, and suddenly you're scrambling to find the cash to cover it. Does this scenario sound familiar?
It's what many founders experience—the profit versus cash flow paradox.
While profit might seem promising, cash flow tells the real story about your business's financial health.
In this episode, our founder and host of Her CEO Journey, Christina Sjahli will clarify the difference between profit and cash flow.
Christina will explain why profit and cash flow don't always go hand-in-hand, and equip you, a mission-driven founder, with the knowledge to use both effectively for wise and sustainable business decisions.
Ditch the financial frustration and join us as Christina reveals the secrets of true financial health for your business!
Key Takeaways:
- Profit (net income): The remaining amount after deducting all costs from revenue. It reflects the profitability of your business model, marketing strategy, pricing, and cost management.
- Cash flow: The movement of money in and out of your business. It tells you about your cash collection habits, supplier credit utilization, inventory levels, and external financing needs.
- Profit doesn't equal cash: Profit is calculated based on accrual accounting (revenue recognized at sale, even if cash hasn't been received), while cash flow reflects actual cash movement.
- Profitability and cash flow are independent: A profitable business can have negative cash flow and vice versa.
- Founders need both: Analyze both profit and cash flow to make informed decisions about your business.
Episode Highlights
- The story behind profit: How a healthy profit indicates a strong business model, effective marketing, and efficient cost management.
- The cash flow conundrum: Why founders might struggle with cash flow despite showing a profit on paper.
- Accrual accounting vs. cash accounting: Understanding the timing difference between revenue recognition and cash receipt.
- Profit vs. cash flow stories: How each metric provides valuable insights into your business health.
- Why both matter: The importance of using both profit and cash flow analysis for effective business management.
Resources
- Connect with Christina Sjahli on LinkedIn
- Check out Christina’s Fractional CFO Services
- Explore Profit Reimagined and discover how you can turn purpose into profit: Website and LinkedIn
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Ready to turn purpose into profit? Transform your financial strategy and embark on a journey toward a sustainable and thriving business. Schedule a chat with the team today!
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