Cash Flow and Profit – What’s the Difference?

Are you finding that your business’s sales are good and that you’re making a profit, but there doesn’t seem to be enough money in your bank accounts?

If you’re stuck searching for cash, chances are that your customers aren’t paying their invoices when you need them to.  This cycle can absolutely leave you with a cash flow shortage.  This doesn’t necessarily mean that they’re making late payments, just that the timing of your payment terms and when they choose to pay their invoices aren’t lining up with when you need the cash.

With accrual-based accounting it’s entirely possible to show a profit but still not have the cash you need to grow, or in some cases, even operate your business.  Remember that profit looks at revenue and expenses during a specific period. If you make more money than you spend, you have a profit.

Cash flow, however, is always changing. It’s dependent on when your money is actually collected.  Depending on your bookkeeping setup, sales on credit can count as “revenue” even if those customers haven’t paid yet.  Because of this, you may have a profit, but the cash just isn’t there.

When a business is short on funds, they might be eligible to borrow money from a bank or even take out a line of credit. Another possible solution, specifically for businesses that credit sales,  is invoice factoring.  This is when a factoring company like CoreFund Capital lends your business money now for invoices that are due in the future.

The difference between profit and cash flow can have a major impact on any small business owner.  Fortunately, signing up for invoice factoring with us at CoreFund Capital can give you access to your capital when you need it.

 

Post written by Senior Copywriter “Nikki Wakefield” of CoreFund Capital, LLC.

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