Cash flow measures the actual inflow and outflow of cash in a business, while net profit represents the amount of money remaining after all expenses are deducted from gross sales, including non-cash expenses.
Primary Implication
If you have a large gap between the amount reported for Gross Sales and Net Profit, then you have high business expenses. While having a high Gross Sales number is ego-building, the Net Profits created after all expenses are paid enable cash reserves to be built.
Accelerate your ability to build cash reserves by continuously improving the quality and quantity of your Cash Quality.
Overview
Cash Flow and Net Profit represent two very different numbers.
- Cash flow can include cash from operations, investment money, and borrowed money.
- Net Profit or Net Income is the bottom line of the P&L Statement after all expenses are deducted from net revenues earned during an accounting period.
The quality of your profits matters because building cash reserves is hard to do. Measures, indicators, and metrics are how you confirm how well your business does this through your profit quality. The BusinessCPR™ Management System is how you improve your ability to convert sales into profits that build cash reserves.
Cash flow measures actual money movement, while Net Profit reflects earnings after expenses. Both are crucial for business success: profit measures performance, cash flow indicates financial health.
More specifically, the ultimate measure of business performance is how well a business extracts a profit from each dollar of sales earned through its operations. The ultimate measure of owner effectiveness in managing their business assets is in the size of their cash reserves.