Cash Flow vs Profit: Why Both Matter for Your Business
At BCS Accountants, we explore what cash flow and profit means, how they differ, and why they matter. For accounting advice, contact us on 01524 824111.
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If you would like more information about BCS and our services, please do not hesitate to contact Us.
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What is Profit?
Profit is the financial gain your business has left over after paying for business expenses. There are three main types of profit:
Gross profit shows what money was left after paying for goods and services. Operating profit shows what is left after paying operating costs such as rent, electricity, staff etc. Lastly, Net profit shows what is left after everything is accounted for. It is what you made after deducting all costs and tax.
It is essential to understand the different levels of profit to get an accurate picture of your business’s health.
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What is Cash Flow?
Cash flow refers to the movement of money in and out of your business. It determines the ability of a business to pay its invoices. It is broken down into:
Cash Inflows
Cash Outflows
A business needs good cash flow to pay bills and keep trading. If your outflows are greater than your inflows, your cash flow is negative, even if your business is profitable on paper.
Understanding your cash flow is essential to the success of your business. Having a good cash flow means you can cover important operational costs alongside short-term obligations without overstretching your budget.
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The Differences: Cash Flow vs Profit
Cash flow only refers to the money that flows in and out of your business within specific timeframes. Whereas profit is what is left from your revenue once you have deducted your costs. Whilst your profit shows short-term success, cash flow provides a more comprehensive insight into how well your business is doing as a whole.
You may have a profitable business but poor cash flow. If you have a poor cash flow, you won’t be able to make the necessary payments to produce goods. This is because you won’t be able to pay staff or suppliers.
If you have a good cash flow but not a lot of profit, you may need to consider if your business goals are sustainable for the long-term. This may include considering if there are more cost-effective ways of producing your products or services, or more profitable products to sell.
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How Can We Help?
At BCS Accountants, we can help you map out your cash position month by month, so you can plan ahead and grow with confidence. We go beyond the numbers to analyse your profits and advise how to improve them.
Let us help you to stay ahead of cash flow challenges and build a profitable business.
Contact BCS Accountants
For more information about our services, contact our team at BCS Accountants. We are based in Bolton-Le-Sands, near Carnforth, but cover Morecambe, Lancaster and Kendal. Call us on 01524 824111. Alternatively, send us a message via our contact form and we’ll be in touch.
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Contact BCS Accountants
Address:
BCS Accountants & Tax Consultants
Border House, 60 Main Road
Bolton le Sands, Carnforth
Lancashire, LA5 8DN
Contact Details:
Tel: 01524 824111
Fax: 01524 825327
Email: enquiries@b-c-s.co.uk
