Life OutLook PH

Profit Explains Yesterday. Cash Flow Funds Tomorrow.

Many business owners celebrate profit but ignore cash flow and that's one of the biggest reasons businesses fail.

Profit tells you how well your business performed over a specific period. It is calculated by subtracting expenses from revenue. A profitable business appears successful on paper, but profit does not always mean cash is available.

Cash Flow shows the actual movement of money into and out of your business. It tells you whether you have enough cash to pay salaries, suppliers, rent, taxes, and other daily expenses.

Why Profit and Cash Flow Are Different
Profit = Revenue − Expenses
Cash Flow = Cash Received − Cash Paid

A company can report a profit but still run out of cash if:

Customers haven't paid their invoices.
Too much cash is tied up in inventory.
Loan repayments are due.
Large equipment purchases reduce available cash.

Simple Example:
Income Statement

Sales: ₱100,000
Expenses: ₱70,000
Net Profit: ₱30,000

Looks great!

But... 🤔🤔🤔

Cash Flow

Cash collected from customers: ₱40,000
Cash paid to suppliers and staff: ₱50,000
Net Cash Flow: -₱10,000

Although the business made a ₱30,000 profit, it actually lost ₱10,000 in cash during the period.

Key Difference

Profit tells you:

💰How much you earned
📈Whether your business is profitable
📊Your financial performance

Cash Flow tells you:

🧾Whether you can pay today's bills
💸 Whether your business can survive
🤑Whether you can invest and grow

Golden Rule:
Profit explains yesterday's performance.
Cash flow determines tomorrow's survival.

A business can survive without profit for a short time by raising cash but it cannot survive for long without cash, even if it is profitable.

Remember:
Profit measures success. Cash flow keeps the business alive.

💰 PROFIT DOES NOT ALWAYS MEAN CASH!

A business can be profitable on paper and still struggle to pay its bills.

That is why every business owner, accountant, and entrepreneur needs to understand Cash Flow.

Cash Flow = Cash In less Cash Out

The real question is not only:

👉 “How much did you make?”

But also:

👉 “How much cash do you actually have available?”

💬 QUESTION:
If a business makes PhP5 million profit but has only PhP500,000 cash available, is the business financially healthy?

YES or NO? Tell me why in the comments. 👇

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