Part 1 – Equipment Purchases

Part 1 – Keeping Score: Cash vs. Profit – Equipment Purchases

 

One of the most commonly misunderstood concepts in business is, “Why is my profit position different than my cash position?” Profit and cash flow are both essential elements of a business, but they are not the same thing. To manage your business, you must understand the difference between making money and managing money.

 

How Profit and Cash Flow Are Different

Profit is revenue less expenses; it is also referred to as net income. Cash flow, on the other hand, refers to a business’s inflows and outflows of cash. Earning revenue does not always increase cash immediately, and incurring an expense does not always decrease cash immediately.

 

Below is a brief illustration to demonstrate just one of the many reasons why cash position and profit position are not the same.

 

EWH: Keeping Score, Cash vs Profit

 

To learn more about the differences between making money and managing money, as well as other important keys to managing cash flow, you can enroll in our Cash Flow Essentials course!

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