The distinction that closes businesses.
WHAT PROFIT IS
Revenue earned minus costs incurred, over a period.
WHAT CASH IS
Money actually in the account.
WHY THEY DIFFER
Revenue is recorded when earned, not when paid Costs are recorded when incurred, not when paid Some payments are not costs at all
WHAT PAYMENTS ARE NOT COSTS
Loan capital repayments Equipment purchases Stock bought but not yet sold Money taken by the owner Tax on earlier profits
WHY THAT MATTERS
A profitable business can run out of money entirely.
HOW THAT HAPPENS
Sales grow Stock and staff are paid for immediately Customers pay in weeks Cash disappears while profit rises
WHAT THAT IS CALLED
Overtrading, and it kills otherwise successful businesses.
WHAT TO MONITOR
Both, separately.
WHAT PROFIT TELLS YOU
Whether the business model works.
WHAT CASH TELLS YOU
Whether you survive until it does.
WHICH MATTERS MORE IN THE SHORT TERM
Cash, always.
WHAT TO PRODUCE
A cash forecast, alongside any profit projection.
WHAT TO CHECK MONTHLY
Both, against what you expected.
WHAT TO NEVER ASSUME
That a profitable month means money is available.
