The difference on one page

Profit and cash answer different questions and almost nobody is taught the difference until it costs them something. Profit asks whether the work you did in a period was worth more than what it consumed. Cash asks whether there is money in the account on the day somebody wants paying. A business can be right on the first and dead on the second, and the second is the one that kills it.

Here is the shape of it in one worked example. You take an order in April worth 400,000, at a cost of 280,000. Your books show 120,000 of profit in April, and they are correct. But you bought materials in March and paid for them in March. You paid your people through April and May. The customer pays you in July, sixty days after the invoice you raised at the end of May. So the profitable order takes money out of your account for four months before it puts any back, and if you take three more orders like it you will be four times as profitable and four times as broke.

This is why growth is dangerous for a business that has not looked at its cash. Every new order enlarges the gap between paying and being paid. The bank balance is not a measure of how well you are doing; it is a measure of where you are in that cycle, and reading it as a score is how people panic in a good month and relax in a bad one.