Understanding Profit vs. Cash: Why They’re Not the Same Thing

Many business owners are shocked to learn they can show a profit on paper—yet still be struggling to make payroll. That’s because profit and cash flow are not the same thing.

This simple guide breaks down the difference, and why it matters for small businesses and Indigenous organizations.

What Is Profit?

Profit (also called net income) is what’s left after you subtract all your expenses from your revenue—according to accounting rules.

It includes:

• Invoices you’ve sent (even if they’re unpaid)

• Inventory sold but not paid for

• Annual depreciation and tax adjustments

It’s useful for reporting and taxes, but it doesn’t always reflect your day-to-day bank balance.

What Is Cash Flow?

Cash flow tracks the actual movement of money—what goes in and out of your bank account.

It includes:

• When customers actually pay you

• When you pay suppliers, staff, or CRA

• Loan repayments or draws from your line of credit

You can have profit without cash—and cash without profit.

Why This Matters for Entrepreneurs

If you focus only on profit, you may:

• Feel like you're doing well but run into cash shortages

• Miss warning signs like unpaid receivables

• Underestimate how much you owe in taxes or remittances

That’s why Clearbook Ledgers encourages clients to review both Profit & Loss and Cash Flow statements monthly.

Indigenous Business Tip

For Indigenous businesses or councils, understanding cash vs. profit supports:

• Better program planning

• More accurate reporting for funders or grants

• Stronger financial governance and community trust

It also helps meet transparency goals under the TH Financial Administration Act.

How to Stay on Top of Both

• Use QuickBooks Online to track both profit and cash flow

• Reconcile bank accounts monthly to catch timing issues

• Review aged receivables and upcoming bills weekly

• Ask your bookkeeper for a simple cash flow forecast

Understanding the difference builds clarity—and confidence.