Profit is a financial gain which is typically a difference between amount earned and amount spent in a business. Cash Flow is the amount of money being displaced into and out of business which affects its liquidity. When new entrepreneurs start their companies, the main aim is to earn maximum profit.
For a business, both are equally important. A business having good profits doesn’t necessarily mean it has a healthy cash flow. Many experts consider that cash flow is more important. The profit is what is left after you have paid up all your expenses and your tax calculation is based on it, whereas the cash flow is something that is a requirement of daily transactions.
A healthy cash flow means that the business is protected even if you’re facing certain issues. It is very critical to keep the business more liquid, the closer your assets are to cash the more successful you will be in dealing with securing finance. It also grants you more opportunity to grow and expand your business.
Equally, keeping an eye on the profit is important too. If you are having good profits, it means that you have a good control over resources, good marketing strategy and you will eventually have more money in your hand at the end of the day.
Having said all that, it won’t be right to shift your focus from either of them. Striking a balance between them is the real mid-way to take. Both are critical measurements of the financial position of any business.
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