Cash Flow vs Profit: Why Profitable Startups Still Run Out of Cash
Profit is revenue minus costs in an accounting period. Cash flow is the money that actually moves through your bank account. A business can show a profit and still run out of cash when customers pay late, stock and equipment are bought in advance, or loan repayments and tax fall due. Track profit in the monthly management pack and cash in a weekly 13-week forecast.
The difference in one table
- Profit counts a sale when you invoice it; cash counts it when the customer pays
- Profit spreads the cost of an asset over its life (depreciation); cash leaves when you pay for it
- Profit ignores loan principal repayments; cash does not
- Profit includes accruals; cash includes only payments made
Why a profitable business runs short
- Growth: more sales means more stock and receivables to fund before cash arrives
- Late payment: long customer terms stretch the cash cycle
- Lumpy payments: tax, annual insurance, bonuses and loan instalments
- Capex and owner drawings paid in cash
An illustrative example
A business sells goods for 100 on day 1. It paid its supplier 60 on day 1 and the customer pays on day 60. The profit statement shows a 40 profit in month one. The bank account is down 60 until day 60. If payroll and rent are also paid in month one, the business may need funding for a profitable sale. These are example numbers.
What to track
- Net profit and gross margin each month
- Closing cash and the minimum buffer each week
- Debtor days, creditor days and cash cover
- The weeks where the forecast falls below the buffer
Get help
Use the free cash runway calculator and the 13-week cash flow template, or ask OmniScope360 to build and maintain the forecast with you.
Frequently asked questions
Yes. Late customer payments, stock purchases, capex, loan repayments and tax can drain cash even when the profit statement is positive.
Which should I watch, profit or cash?Both. Profit shows whether the model works over time; cash shows whether you can pay your bills this month.
What is the cash conversion cycle?The time between paying for stock or services and collecting cash from customers. A shorter cycle needs less funding.
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Written by Akram El-Karrar, CPA, from the work we do for startups every week.