📈 “We made a profit last quarter!”
📉 “But we’re struggling to pay salaries this month…”
Sound familiar? You’re not alone.
Profit and cash flow are not the same — and confusing them is one of the most expensive mistakes a founder can make.
In this edition, I’m simplifying this difference and showing you how to manage both with confidence.
💡 First, What’s the Difference?
🧮 Profit (aka Net Income):
What’s left after subtracting all expenses from revenue — on paper.
Formula:
Revenue – Expenses = Profit
This shows whether your business is financially viable on record (i.e., as per your Profit & Loss statement).
💸 Cash Flow:
The actual movement of money in and out of your bank account.
Formula:
Cash In – Cash Out = Net Cash Flow
This determines whether you can pay your bills, salaries, vendors, and run your business today.
🔍 Why This Confusion Hurts Founders:
✅ You can show a profit and still run out of cash (e.g., high receivables)
✅ You might assume you’re growing, but your runway is shrinking
✅ Missed salaries or vendor payments = loss of trust
✅ It hurts your fundraising story when investors spot the gap
🔧 Common Traps (and Fixes)
1. Delayed Receivables
You record revenue, but the cash hasn’t arrived.
🩹 Fix:
-
Track receivables weekly
-
Incentivize early payments
-
Automate follow-ups
2. Capex & EMI Ignorance
Profit ignores EMIs, but your cash doesn’t.
🩹 Fix:
-
Account for loan repayments and big-ticket purchases in cash flow forecasts
3. GST & TDS Surprises
Looks like profit — until the taxes hit.
🩹 Fix:
-
Forecast tax outflows monthly
-
Maintain a separate tax holding account
4. Founder Drawings Not Tracked
You take money out — but forget to account for it.
🩹 Fix:
-
Track all founder withdrawals
-
Align with cash flow plans
✅ How I Help as a Virtual CFO
At CFO Emeritus, I help startups:
-
Set up monthly cash flow dashboards
-
Align profitability with liquidity
-
Avoid “paper profit” illusions
-
Plan for real financial runway
📩 Want to know your actual runway or clean up your cash flow logic?
Message us or reach out at office@cfoemeritus.com.
PS: Next week’s edition:
“What Should Be in a Startup’s Monthly MIS Report?”
(Plus a free format to use)
Make sure you’re subscribed!
